First-time Buyer Affordability worsens

by : Elisha Burberry

First-time buyers looking to make their first step on the property ladder could be finding it harder than ever before as a new study revealed that affordability has worsened considerably in the last decade.

Research carried out by the Royal Institute of Chartered Surveyors (RICS) found that the overall cost of buying a home is 351 per cent worse than in 1996, when it was at its most accessible point. The decline in accessibility was attributed mainly to lower loan-to-value ratios on offer from lenders and expensive factors involved with property purchase such as stamp duty and legal costs.

Explaining the impact on first-time buyers, the report used the example of a couple on lower quartile earnings with a combined total of ?26,595 after tax. In order to cover the deposit, stamp duty and other costs incurred when buying a house, they would need to save ?27,729. This amounts to 104 per cent of annual take home income, compared to 23 per cent needed in 1996.

Senior economist at the organisation David Stubbs said that the ongoing effects of the credit crunch mean that circumstances for first-time buyers are unlikely to improve significantly in the near future as lenders require larger deposits. Even those buyers who have managed to save enough to enter the property market may now find themselves struggling. According to the RICS figures, a couple on lower quartile earnings must give over 40.3 per cent of take-home pay to service a mortgage, while the report forecasts that there will be 123 homes repossessed each day in 2008.

A separate report from the Office for National Statistics found that UK households spend an average of ?143 a week on costs related to housing, including mortgage payments, council tax and utilities among other expenses. In order to help manage the difficulties associated with homeownership, charity Shelter has called on the government and mortgage lenders to set up an advice service to assist people struggling to meet mortgage repayments. According to the organisation, 80,000 people got in touch in 2007 about problems dealing with housing costs compared with 10,000 the year before.

It seems, however, that first-time buyers have not been completely put off saving money for buying a home although numbers are declining. Figures from the Bank of England revealed that 73,000 mortgages for home purchase were approved in December 2007, down from 81,000 the month before.

First-time buyers saving for a deposit could keep their funds in an internet savings account, as this would allow them to check their balance anytime, from anywhere with an internet connection.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.