According to the latest Accessibility and Affordability Index published by the Royal Institution of Chartered Surveyors (RICS), the cost of becoming a home purchaser in Great Britain has worsened by 351% since the most accessible point in 1996.
A first time buyer couple, both on lower quartile earnings (totalling £26,595 after taxes), will now have to save up to the equivalent of 104% of joint take home pay, to build up the £27,729 needed for up front buying costs on a typical home including the deposit, fees and stamp duty. This equates to a substantial rise from the low point of 23% required in 1996.
The key drivers of the worsening accessibility picture were the slight reductions in loan-to-value ratios that lenders were offering first time buyers, as well as the continued burden of stamp duty and the costs of buying a home.
Affordability problems are still close to record levels. A couple on lower quartile income now has to spend 40.3% (down slightly from 40.8% in Q3 2007) of their combined take home pay to service their mortgage, 8.0% below the all time high of 47.8% in Q1 1990. The slight improvement in affordability can be attributed to stable interest rates in Q4 and rising earnings which reduced these mortgage payments as a proportion of combined take home pay. Repossession levels are set to continue to rise with RICS estimating that 123 houses will be repossessed per day in 2008.
London is still 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.
London is also the region with the worst affordability levels, first time buyer households have to spend the highest proportion (51%) of their after tax income on mortgage payments compared to only 29% in the North East region.
RICS senior economist David Stubbs, said: "At the start of 2008, first time buyers are finding it even harder to get a foothold on the housing ladder and the signs are that conditions are unlikely to get better in the short term. Mortgage lenders are demanding ever higher deposits as the credit crunch continues to take effect. Those who are struggling with mortgage repayments are still faced with paying a large percentage of take home pay but there may be some release of pressure as earnings continue to rise. If the Bank of England cuts interest rates next week, many will breathe a sigh of relief."
