Mortgage shortage leaves first-time buyers further away from owning a home

Home ownership has become even more inaccessible to first-time buyers despite the prolonged fall in house prices, figures released today by the Royal Institution of Chartered Surveyors will show.

Rics said that, while this year's falls in house prices should have helped people to get on to the property ladder for the first time, the dwindling number of mortgages available to buyers with little or no deposit has completely negated the impact of a falling market.

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Rics calculates that the average first-time buyer now has to find £27,738 to fund the cost of a deposit, stamp duty and legal fees on the purchase of the typical home. This represents more than 100 per cent of the combined annual take-home pay of a couple in the lowest-earning 25 per cent of the population.

The increasing up-front costs of home ownership come despite eight months of falling house prices, with the market down 7 per cent since last November, according to Nationwide Building Society.

Housing is now only marginally more accessible than at the all-time worst level seen in the third quarter of 2004, and first-time buyers' prospects of getting into the market have been declining steadily since the beginning of 2005. In 1996, the typical first-time buyer couple had to save just 21 per cent of their combined annual take-home pay to fund the upfront costs of buying a home.

Rics said the disappearance of 100 per cent mortgages and the fact many lenders have withdrawn 95 per cent home loans, combined with stagnant real incomes, had left many first-time buyers further away than ever from buying their own property.

"Access to the housing market has deteriorated as the credit crunch has taken hold of the mortgage lending sector," said David Stubbs, the organisation's senior economist. "With mortgage approvals declining, the picture does not look like improving in the latter part of 2008, and first-time buyers will find their path to home ownership increasingly blocked."

Rics' warning was underlined by new figures from the Bank of England yesterday. It said there were now just 80 mortgage products available requiring only a 5 per cent deposit, down from 1,079 a year ago. The lack of products means the Bank is no longer able to publish meaningful data on the typical cost of two-year fixed-rate 95 per cent mortgage products.

The Bank also warned that the cost of fixed-rate deals hit an eight-and-a-half year high last month, as lenders continued to raise rates. The Bank said the average two-year fix for someone borrowing 75 per cent of the value of their home cost 6.63 per cent. The cost has risen by 0.37 percentage points since May and now stands at its highest figure since February 2000.

The cost of longer-term fixed-rate mortgages has also risen sharply over the past month, the Bank warned, with three- and five-year deals becoming significantly more expensive.

The increasing cost of home loans is a major headache for 1.5 million mortgage borrowers who are due to remortgage existing deals this year. George Buckley, an economist at Deustche Bank, said: "The repayment shock for those attempting to refinance two-year fixed-rate mortgages is now huge."

Rics also warned increasing numbers of homeowners would struggle with the cost of mortgage repayments, despite identifying a small fall in the cost of servicing home loans. It said the average low-income couple spent 34.5 per cent of their take-home pay on mortgage costs during the second quarter of the year, down from 37.2 per cent during the first quarter. The fall reflects lower house prices and the fact that borrowers are now typically offered smaller mortgages by lenders.

"Those who are able to access the housing market will find that a bigger deposit will mean that mortgage repayments are reduced, but with real incomes stagnating this will seem like light relief only," Mr Stubbs added.

"Homeowners' finances will continue to struggle, with rising food and fuel costs making the burden of mortgage repayments even more difficult."