House buying has always been an expensive business hasn’t it?
For you first time buyers it’s always been tricky to balance the desire to have your own home against the fact that you are getting yourself into a lot of debt.
Sadly, new research makes for even more disheartening news for those of you trying to buy your first home.
As a young homebuyer, you would need to save your entire year's earnings just to get a foot on the property ladder!
If you are couple with a combined take home pay task of £27,500 or less you would have to save more than a year’s salaries to pay for your deposit, stamp duty and solicitors’ fees on the average first-time home; that comes to a total bill of £27,738.
If both of you were earning the average wage, you would have to set aside 66% of your take-home pay of £44,000 to cover the bill.
The figure is more than the total annual take home pay of 25% of couples, whose salaries have risen at a third of the rate at which property prices have gone up since 1996. In 1996, you needed just 21% per cent of your annual income to buy a property.
Income for people in the lowest quarter of earnings has increased by an average of just 3.5% a year since 1996, while house prices in the UK have soared at an average rate of 10.3%.
The figures were released by the Royal Institute of Chartered Surveyors (RICS) who said that the increasing difficulties you face trying to buy your first home were being driven by the huge deposits mortgage lenders now required, as well as the high level of stamp duty you had to pay.
RICS senior economist David Stubbs said:
"Access to the housing market has deteriorated as the credit crunch has taken hold of the mortgage lender sector... 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."
Many of you homeowners watching the value of your homes slide also face more misery as mortgage rates continue to rise.
The cost of an average two-year fixed-rate mortgage hit an eight-year high last month, rising by 0.37% to 6.63% in June, according to new figures from the Bank of England. Put it this way, if you are a homeowner with a £250,000 mortgage, switching to the new deal would mean you having to pay nearly £700 extra each year.
About 1.5 million of you are coming to the end of your mortgage deal this year and will have to remortgage.
It may as well be called that when you look at these figures:
£162,666 - cost of the average first home
£27,738 - average cost of deposit, stamp duty and solicitor’s fees for a first-time buyer
66% - the proportion of take-home pay that a couple on average earnings would have to set aside for a year to cover the costs of buying a home
20% - the proportion that they had to set aside in 1997
7.15% - the average rate on a 5 year fixed rate mortgage for a buyer with a 5% deposit
Mortgage lenders are refusing to offer loans to those of you without significant deposits as they strive to protect themselves in the credit crunch. Last year as a first-time buyers you had the pick of mortgages offering you 100% per cent of a property’s value. If you don’t have a deposit of more than 5%, you will struggle to secure a mortgage.
To add to borrowers’ woes, many lenders are also increasing the fees for setting up a mortgage to rake in more cash. Five years ago the average arrangement fee was between £299 and £399; now fees of more than £2,000 are not uncommon.
- Affordability problems easing
But the RICS research found that affordability problems had eased slightly for those of you able to buy your own home.
It said a couple on the bottom 25% of earnings would now have to spend 34.5% of their take-home pay on mortgage repayments, down from 37.2% during the first three months of the year and a record high of 46.5% at the end of 1989.
The improvement in affordability has been caused by a combination of falling house prices and the larger deposits people are putting down, leading to them having smaller mortgages.
So, with the cost of a deposit, never mind stamp duty and mortgage fees, is it really worth even contemplating a house right now?
Even with house prices falling (on average £17,000 since the start of the year), and the fact that salaries are still way behind the cost of living, it still seems most of us can’t really afford a house.
What do you think?
(Sources: RICS, Department of Communities and Local Government)