First-time buyer mortgages top £120,000

First-time buyers have got it tougher than ever. Prospective new home owners now have to borrow an average of £120,500 to make their first step on the property ladder.

Eleven years ago, in 1996 the average amount a first-time buyer had to borrow was £39,811 – so the amount has increased by 202% in eleven years.

The figures, from a report by online mortgage comparison website mform.co.uk, suggest that if the same growth rate is maintained, then by 2012 would-be house buyers would have to take out mortgages of over £200,000.

Eammon Rice, chief executive at mform, says: “First-time buyers are increasingly having to borrow larger sums to get on the ladder. This is worrying given that interest rates and the cost of servicing a mortgage have risen steeply and could rise again.”

In 2007, if a first-time buyer were to take out the average starter mortgage at three-times their salary, they would need to be earning £40,190. If growth is maintained as suggested then by 2012 the chief earner would need to be earning £66,806. That’s a 66% increase in earnings compared to today’s requirement.

“When costs are rising it is even more important for borrowers to look at the total outlay of their mortgage deal taking into account the mortgage rate and any fees and charges over the term,” Rice added.

It is no surprise, therefore, that the number first-time buyers fell at its fastest rate for three years during July. They will now hope that interest rates have peaked as the Bank of England kept interest rates at 5.75% in September – the rate has been the same since its quarter point rise in July.

A recent report published by Alliance & Leicester found that parents are forking out more than £21,000 to help their children buy homes – up £3,500 since a year ago.