Double blow for first-time buyers with low incomes

FIRST-TIME buyers have suffered a double blow after a new report said it is "almost impossible" for people on low incomes to buy their own home.

The Royal Institution of Chartered Surveyors (RICS) report claims that couples with a joint income of less than £27,000 have little chance of getting on the housing ladder.

Figures released today show that the number of mortgages available for people with a 5 per cent deposit has dropped by 40 per cent during the past month.

The increasing difficulties faced by people buying their first home are being driven by the huge deposits mortgage lenders now require, as well as the high level of stamp duty people must pay.

Edinburgh's market for two-bedroom flats, which have typically been bought by first-time buyers, has plummeted in recent months.

The RICS research found a couple with take-home pay of £27,516 a year would have to save an average of £27,738 to meet the upfront costs of buying a home during the second quarter of 2008, more than 100 per cent of their annual income, and a massive increase on the 1996 figure when only 21 per cent of salary was required.

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."

Meanwhile, research from Moneyfacts.co.uk has revealed there are now only 80 different deals available for people borrowing 95 per cent of their home's value, down from 134 at the beginning of June and more than 1,000 in July last year.

These mortgages are the latest area in which lenders are tightening their lending criteria, following the demise of 125 per cent loans and 100 per cent deals earlier in the year.

The situation looks set to get worse going forward, with lenders warning in the Bank of England's recent credit conditions survey that they planned to further tighten their lending criteria during the coming three months.

Charles Gallagher, chairman of Abbey PLC, said: "In recent weeks trading conditions have deteriorated noticeably. The rate and depth of the current slowdown in activity is outside our experience.

"It seems clear that the source of the difficulty is the dramatic contraction of the mortgage market. Unless conditions markedly improve, a wrenching adjustment lies ahead."

The RICS research showed London is still the most difficult place for people on low earnings to get on the property ladder, with couples there needing to save 133 per cent of their annual take-home pay, while those in Scotland at 74 per cent.

• Interest rates were held at five per cent today in a blow to homeowners and businesses who had been hoping for a cut.

The Bank of England's monetary policy committee said it is to peg the cost of borrowing for the third consecutive month, despite a weakening economy and the recent loss of thousands of jobs in the housebuilding sector.

SIX PER CENT FALL
HOUSE prices are falling at their fastest rate since the 1990s house price crash, losing 6.1 per cent of their value during the past year.

Figures from Britain's biggest mortgage lender, the Halifax, show the average property price dropped by 2 per cent during June, following a slide of 2.5 per cent in May, to stand at £180,344.

The annual rate at which prices are falling continued to accelerate during the month, increasing to 6.1 per cent, the highest level since March 1993.

House prices have dropped in eight of the past ten months.