Over the past ten years, the rise in house prices has been so pronounced that accessibility is almost 230 percent worse than in 1996 and currently as low as the weak levels experienced in 1980.
A first time buyer (FTB) couple will now have to save up to the equivalent of 81.8 percent of joint take home pay, to build up the £32,784 needed for up front buying costs on a typical home, deposit and stamp duty. This equates to a substantial rise from the low point of 25.2 per cent required in 1996. With RICS predicting that house prices will rise by 12 per cent over the next two years, circumstances are expected to worsen.
Accessibility worsened sharply in 2006 and is now rapidly approaching the all time high of 2004.
Affordability weakened in 2006 to its worst levels since 1991 with home owners struggling to service mortgages.The RICS affordability index worsened by 8.5 percent in 2006 and has worsened by almost 70 per cent since the low point in 1996.
RICS estimates that a two person household on average incomes would have to spend 22 per cent of their take home pay to service their mortgage, up from the low point of 13.5 percent in 1996. With expected interest rate increases, repossessions could be prevalent in 2007.
Affordability worsened further in 2006 H2 as mortgage repayments became a greater share of take home pay than at any time since 1991 Q4
David Stubbs, senior economist at RICS, said:"Spiralling house prices have created a property glass ceiling for many FTBs. With couples needing nearly 82 per cent of joint take home income to fund the upfront buying costs of a typical home, the Government's plans to create an inclusive society seem like a pipe dream. Unless the Government builds more affordable housing, and raises the stamp duty threshold, many households will continue to struggle to access the housing market. Affordability conditions will also continue to worsen with the monetary policy committee (MPC) expected to raise interest rates in February. However, many households will still be watching tomorrow's interest rate decision with keen interest."
