The plight of first-time buyers struggling to get on the housing ladder is worse than ever, figures revealed yesterday.
The Council of Mortgage Lenders said the average person buying their first home takes out a mortgage worth £115,499 - 3.31 times their income, the highest multiple since the survey began in 1974 and up sharply from 2.4 at the start of 2000. The increase reflects the long-running boom in house prices, which have outstripped buyers' incomes.
Due to a combination of surging house prices and higher borrowing costs, the proportion of income spent on servicing mortgage interest payments has risen to 17.9 per cent, up from 15.9 per cent a year ago. The Bank of England has lifted interest rates three times since last August, each quarter-point increase adding about £16 to monthly payments of those with a £100,000 repayment mortgage.
In a painful double whammy, more first-timers are also being hit by stamp duty - 59 per cent compared with 50 per cent when the £125,000 threshold was set in the last Budget.
Michael Coogan, the CML's director general, said: "The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers and the ever-rising proportion of them who are caught by stamp duty. Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continued decline in affordability are likely to dampen activity somewhat in 2007."
New research from Nationwide shows a typical first-time buyer entering the market now would face monthly payments £118 higher than if they had entered this time last year, because of higher house prices and interest rates. In Northern Ireland, where prices are rocketing, the figure rises to £285.
On top of this, they would have had to find an additional £700 to make up their deposit of 5 per cent of the property price. A growing number of first-timers are being forced to raid the "bank of Mum and Dad", relying on handouts or loans from parents to put together enough money for a down payment.
Despite the growing financial hurdles, home ownership remains an aspiration for many. Over 2006 as a whole, the number of mortgages to first-time buyers increased by 19 per cent, according to the CML. First-timers accounted for 36 per cent of all house purchase loans, slightly up on the 2005 figure of 35 per cent.
The CML said the broader housing market ended 2006 on a strong note. Total mortgage lending in December fell 14 per cent from November's all-time high of £33.2bn to £28.6bn, but that was still the highest December figure on record. The figures are not seasonally adjusted, so take no account of the Christmas slowdown. For 2006 as a whole, mortgage lending totalled £344.9bn, up 20 per cent on the previous year.
The figures came as Bradford & Bingley, the UK's largest buy-to-let lender, said it had seen no weakening in new business after the three interest rate rises, claiming 2007 had got off to an "incredibly strong" start.
Publishing the group's 2006 results, which revealed a better-than-expected 8 per cent rise in underlying profits, B&B's chief executive Steven Crawshaw said he expected the UK residential housing market to continue growing in 2007, albeit at a slower rate. "There's no worry about the UK falling out of love with the housing market," he said.
Mr Crawshaw added that he believed some market commentators had overblown the significance of the rate rises, pointing out that the increases had already been priced into fixed-rate mortgages for several months before the first rise in August.
B&B saw the strongest growth in its specialist mortgage products such as self-certification mortgages, which grew 46 per cent over the year.
Although B&B's results revealed a near 10 per cent increase in the number of people who are more than three months in arrears on their mortgage in 2006, it said this had peaked in the first half and had been falling since. Mr Crawshaw said only a very small number of those who fell more than three months behind on their payments ended up becoming bad debts for the company.Reuse content