Access to the housing market 350 percent worse than 1996

The cost of becoming a home purchaser in Great Britain deteriorated by 8.4 percent in the year to 2007 Q2 and has worsened by around 350 percent since the most accessible point in 1996, according to an accessibility index, developed by RICS (Royal Institution of Chartered Surveyors).

A first time buyer couple, both on lower quartile earnings (£25,899), will now have to save up to the equivalent of 96 percent of joint take home pay, to build up the £25,600 needed for up front buying costs on a typical home, deposit and stamp duty. This equates to a substantial rise from the low point of 21 percent required in 1996.

Affordability has deteriorated to almost record levels. A couple on lower quartile income now has to spend 44 percent (up from 38 percent in Q1 2007) of their combined take home pay to service their mortgage, only four percent below the all time high of 48 percent in Q1 1990. With the whole of the interest rate cycle yet to filter through, repossession levels are set to continue to rise.

London remains the most difficult place for a couple on lower quartile income earnings to access the housing market. In London, the South East and South West, couples have to save over 100% of their combined take home pay to reach the levels necessary to get a foothold on the property ladder. However, In Yorkshire and Humberside and in the North West of England couples need only save 73 percent of their combined income to access the market.

London is also the region with the worst affordability levels, first time buyer households have to spend the highest proportion (51 percent) of their after tax income on mortgage payments compared to only 33 percent in Yorkshire and Humberside.

RICS senior economist David Stubbs, said: “First time buyers are facing an enormous struggle to access the housing market. This may worsen if the turmoil in the US market forces mortgage providers to tighten lending criteria and demand even higher deposits.

“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. House prices have risen by over 11 percent a year since 1996 whereas first time buyer incomes have only risen by 3.5 percent 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.”