Property prices boosting sub-prime market

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The Independent Online

Housing in Britain has rarely been less affordable than it is today, according to the latest intelligence from the Royal Institution of Chartered Surveyors. A combination of still-rising property prices, rising interest rates and taxes, and higher household bills have conspired to push more and more people out of range of a home of their own.

The Rics reported that property is now more than three times less affordable for first-time buyers than it was in 1996, when getting on to the property ladder was the easiest in recent decades. A first-time-buyer couple with a combined annual take-home pay of £25,899 would now have to save up the equivalent of 96 per cent of their annual post-tax earnings, or £25,600, to pay for a deposit and stamp duty on the typical home. Meanwhile, a couple on this income would have to spend 44 per cent of their take- home pay on a mortgage, only 4 percentage points less than the record of 48 per cent reached in 1990. At that time, interest rates were much higher, and the burden today derives mainly from the huge increase in property values.

Such pressures have fostered the growth of the controversial "sub-prime" market, which accounts for 8 per cent of the UK mortgage market. In the United States, the "sub-prime" phenomenon has seen a rash of defaults as borrowers find introductory cheap-rate deals expiring and the cost of market-rate mortgages unaffordable. Some observers have warned a similar effect could be seen in Britain.

The cost of housing is also affecting those already on the property ladder. The Rics says that, with some of the recent interest rate rises still to filter through, the number of homes being repossessed looked set to continue increasing. Repossessions and auction sales are increasing rapidly, albeit from historically low levels.

London is the hardest place to get on to the property ladder, followed by the South-east and the South-west. In these regions, couples on low earnings would have to save more than 100 per cent of their combined annual take-home pay to afford a deposit and stamp duty. Affordability is better in the north of England, but even here couples would still need to save 73 per cent of their take-home pay for up-front costs.

David Stubbs, Rics senior economist, said: "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."

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