A year's pay needed for deposit

Research from the Royal Institution of Chartered Surveyors (RICS) has revealed that a first-time buyer couple earning lower quartile salaries will now need to save over 100% of their annual wage to build up the average deposit needed for a home.

The upfront buying costs now stand at £27,738 including the deposit, fees and Stamp Duty. This percentage of income needed equates to a substantial rise from the low point of 21% of income required in 1996.

This worsening accessibility recorded by RICS has been driven by the reductions in loan-to-value ratios that lenders are offering buyers, as well as the continued burden of Stamp Duty and the other costs of buying a home.

Lenders are forcing would-be buyers to put up more money for deposits and given that real income growth has stagnated, getting onto the housing ladder is now only slightly below the all time worst level seen in Q3 2004.

However, affordability has improved for those lucky enough to be able to access the market. A couple on lower quartile incomes now has to spend 34.5% (down from 37.2% in Q1 2008) of their combined take-home pay to service their mortgage, significantly below the all-time high of 46.5% in Q4 1989.

The improvement in affordability can be attributed to falling prices and tighter lending conditions. Smaller mortgages mean smaller repayments in a time when interest rates are relatively low.

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.

“Those who are able to access the housing market, will find that a bigger deposit will mean that mortgage repayments are reduced but with real incomes stagnating this will seem like light relief only. Homeowners’ finances will continue to struggle with rising food and fuel costs making the burden of mortgage repayments even more difficult.”