Low income households will have to save more than a year’s net salary in order to climb onto the property ladder, new research has found.
The average income for households in the bottom quarter of earnings is £27,316 after tax, according to the Royal Institute of Chartered Surveyors (RICS). However, a first time buyer will need to find £27,738 in order to cover the deposit and fees associated with purchasing a home.
This is a massive ask, especially considering such households traditionally struggle to save, and of course rising food and fuel bills merely compound the problem.
Falling house prices won’t help
As an indication of just how difficult the situation has become for low income households, RICS says the same group of people would have needed just 21% of their income to climb onto the property ladder in 1996.
The recent dip in house prices has done little, if anything, to help their plight, as it has come at a time when mortgage costs are sky-rocketing. Recent research from a price comparison site showed that two year fixed rate mortgage costs were at a ten year high, while lenders across the board are demanding ever larger deposits.
Whereas 100% mortgages were commonplace little more than a year ago, a 10% deposit is fast becoming the bare minimum requirement to qualify for a mortgage. Those looking to get their hands on the most competitive rates generally have to come up with a whopping 25% deposit – far beyond the financial reach of most first time buyers.
Things won’t get better any time soon
Small wonder then, that the number of home loans taken out in May was 44% lower than a year earlier.
“Access to the housing market has deteriorated as the credit crunch has taken hold of the mortgage lender sector,” says RICS senior economist David Stubbs.
“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.”
Unsurprisingly, London is the area where low income households will struggle the most, while those in Scotland and the north-east of England are best placed to climb onto the property ladder.
