More pain for first-time buyers
The Royal Institution of Chartered Surveyors has warned that affordability problems are close to record levels.
The organisation's research shows that a first-time buyer couple on low earnings will have to save up to the equivalent of 104% of their joint pay in order to build up the £27,729 needed for a deposit, mortgage fees and stamp duty.
This is up from the 23% a similar couple would have needed to save in 1996.
RICS says lenders reducing the loan-to-value ratios they will lend borrowers, the increasing cost of stamp duty and rising house prices are to blame for worsening accessibility to the housing ladder.
Another consequence of the affordability crisis is that those already on the housing ladder are more at risk of falling behind with repayments and losing their homes.
RICS predicts that 123 homes will be repossessed every day in 2008.
David Stubbs, senior economist at RICS, says: “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.”
Although recent data from the Land Registry show that house prices are falling, the credit crunch means it is harder for borrowers to get access to mortgages.
According to the Land Registry, in December house prices fell 0.4% bringing the cost of the average property to £184,469.
The downward trend in the housing market has been well documented, and although it does provide some opportunities for first-time buyers it might prove problematic for people hoping to move up the ladder.
Nationwide Building Society’s data for January show house prices fell by 0.1% during the month, the third consecutive monthly fall.
Martin Gahbauer, senior economist at Nationwide, says: “Although house prices have now fallen for three consecutive months, the price of a typical property is still 4.2% higher than a year ago.
“However, this figure is down from 4.8% in December and represents the lowest rate of annual house price inflation since December 2005.”
The number of potential buyers visiting estate agents dropped to a low last September, according to data from RICS. But estate agents are now reporting that buyers are starting to return spurred on by expectations of lower interest rates in 2008 and cheaper house prices.
However, inaccessibility to mortgage borrowing is also a serious concern. The Bank of England’s net lending figures from December show £8.6 billion was lent on property in December, lower than the previous six-month average.
The number of loans approved by lenders for house purchases was down to 73,000 from 81,000 in November.
However, the number of remortgage loans was stable between November and December, suggesting that mortgage lenders are focusing on the remortgage rather than the new purchase market.
RICS says the more discriminating policy of lenders is having a serious impact on buyers.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.