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Finance

Homeownership '350 per cent more difficult'

05/09/2007

The ease at which first-time buyers can gain a foothold on the property ladder has reportedly worsened by 350 per cent in Britain over the last 11 years.

A new survey says that in the year to 2007 alone, the cost of becoming a homeowner in the UK deteriorated by 8.4 per cent.

According to the Royal Institute of Chartered Surveyors (Rics), a first-time buyer couple with salaries of £25,899 each would now have to save up to 96 per cent of their joint take-home pay to amass the average upfront buying costs for a typical home, including a deposit and stamp duty.

In 1996 the proportion stood at 21 per cent, while exorbitant house prices in London, the south-east and south-west of England mean that couples earning the same amount need to save more than 100 per cent of their combined take-home pay to buy their first property.

David Stubbs, senior economist at Rics, acknowledged that first-time buyers were facing "an enormous struggle to access the housing market"; despite data revealing house price growth in the UK had slowed.

He went on to say that the situation "may worsen if the turmoil in the US market forces mortgage providers to tighten lending criteria and demand even higher deposits".

Today's survey also shows that first-time buyer couples earning about £26,000 a year need to pay 44 per cent of their combined take-home pay to service their mortgage, compared to 38 per cent in the first-half of 2007.

"Even if prospective first-time buyers make it onto the market, they face mortgage payments which take up a higher percentage of their take-home pay than at any time since 1990," Mr Stubbs added.

"House prices have risen by over 11 per cent a year since 1996 whereas first-time buyer incomes have only risen by 3.5 per cent a year. This has forced buyers to borrow ever greater amounts and now higher interest rates are applying pressure to the household finances of recent buyers.

"However, affordability pressures may be nearing a peak. With house price growth expected to be below earnings growth in 2008, and with possible interest rate cuts in the second half of that year, the burden on first-time buyers may lesson somewhat. But the present difficulties of first-time buyers will remain a feature of British society for many years."

On Thursday the Bank of England's monetary policy committee (MPC) announces the outcome of its monthly meeting deciding whether to lower, hold or raise interest rates.

It is expected that the MPC will vote to keep base rates at their current 5.75 per cent level.