When the cheapest home in town is beyond your means
Last updated 05:30, Friday, 13 June 2008
More than one in four young people are priced out of their local housing market with affordability problems being made worse by the credit crunch.
Around 28.3 per cent of young working households in Great Britain cannot afford even the cheapest property in their local area, according to a report by Professor Steve Wilcox of the University of York.
The problem is even more severe in certain areas of the country, with 41 per cent of people priced out of the market in London and 40 per cent unable to get on to the property ladder in the South West, rising to more than 50 per cent in certain towns.
The report, which was complied for property information group Hometrack, said the situation was being made worse by rising mortgage costs, both before and after the credit crunch hit, on top of strong house price growth in recent years.
It found that average mortgage costs for first-time buyers rose by 12 per cent during 2007, with people getting on to the property ladder having to spend an average of 34.5 per cent of their pay on mortgage repayments, up from a previous high of 34.1 per cent in 1990.
Professor Wilcox said: “While house prices are falling, access to the property market is being increasingly limited by the costs and more restrictive terms of a substantially reduced supply of mortgage finance.
“Without further measures to restore the availability and accessibility of mortgage finance there is the risk of a severe downturn, with all the harmful consequences that this entails.”
Richard Donnell, director of research at Hometrack, said that while mortgage rates for first-time buyers had risen, changes to the availability and terms of mortgages had had the greatest impact. He said: “The reduction in maximum loan to value ratios to 90 per cent has increased the cost of getting on the housing ladder by an average of £10,000.
“Until such time as mortgage rates start to fall, then lower house prices will be the only real driver of improved affordability for first-time buyers.”
He added that 20 per cent of people who were currently priced out of the market would be priced back in by a 10 per cent fall in house prices.
The research found that in 42 areas of the country the average cost of a two or three-bedroom home was six times greater than the average income for a working household where both partners were aged between 20 and 39.
Affordability is most stretched in London, with the average first home costing 6.11 times young people’s income, while in the South West it costs around 5.38 times people’s pay and in the South East it costs 4.89 times their income.
At the other end of the scale there were just 10 local authorities in 2007 were first homes cost an average of less than three-times local earnings – the typical income multiple that mortgage lenders will advance.
Property is most affordable in the North East, with just 16.9 per cent of young working households in the region priced out of the property market.
The report also found that the cost of renting was substantially lower across nearly the whole country, with people typically paying rent of just 68 per cent of mortgage repayments on a two or three bedroom home.
A Communities and Local Government spokesman said: “We recognise the difficulties that some first-time buyers are facing at the moment because of the global supply of credit, and we are working closely with mortgage lenders to ensure that the market remains accessible.
“At the same time, we are increasing support to help first-time buyers into affordable home ownership by enabling all households with an income of £60,000 or less to apply for our shared ownership schemes, which have already helped 110,000 families on to the housing ladder.”
