First-time Buyers Feel Even More Pain

The amount first-time buyers have to spend on their mortgage is continuing to rise. Figures from the Council of Mortgage Lenders have revealed that new home owners are spending over a third of their take-home pay on their mortgage.

Along with a number of other figures concerned with the housing market recently, this is the highest level since the last property crash in the early 1990s, and financial advisers have said that huge mortgages are a disaster waiting to happen.

Young buyers are having to use 35% of their net monthly income on mortgage repayments; and this at a time when other household bills are rising fast. Food, energy, fuel – all bills are going up.

Rising house prices over the last ten years have resulted in first-time buyers taking out higher mortgages than ever before. The average first-time borrowing is £118,000. Five years ago is was just £71,000 – meaning an increase of 66%. In that time the average annual pay rise has been a mere 3%.

CML figures show that first-time buyer mortgage interest uses up 20.7% of their gross income – that’s before tax.

Investments director of financial advisers Torquil Clark, Philippa Gee, said: “This is a disaster waiting to happen. The situation may be even more serious than it was in 1991 because so many other costs are spiralling. The financial squeeze may be too great for many. The extraordinary prices for petrol, gas and electricity combined with mortgage payments will push people over the edge. It will have a devastating effect on many people’s lives.”

In addition, more first-time buyers than ever before are being forced to pay stamp duty. Only two years ago, less than half of first-time buyers had to pay the tax; now there are only 38% who avoid it. The first band starts at £125,000.

Many young buyers are forecast to be among the rising number of victims of repossession for 2008