Other findings include:
- Only about 20 per cent of homeowners are in the 20-24 age group, compared to around 30 per cent ten years ago
- Deposits and income multiple constraints are a bigger hurdle for ‘true first-time buyers’ than debt servicing costs
- Less than 10 per cent of 22-29 year olds can overcome lending income multiple constraints
- Young teachers, nurses and policemen cannot afford to buy alone – especially in London
"Indeed, the proportion of young people who are home-owners has fallen significantly over time. In 1994, 34 per cent of adults aged 20-24 were home owners. Ten years later this proportion had fallen to only 20 per cent. So it seems that affordability may have hit the true fresh-faced, first-time buyer more than the top level figures suggest.
"Nationwide’s affordability index attempts to track the movements in affordability for true first-time buyers by using earnings data which captures all prospective home owners. Affordability has deteriorated significantly over the last 10 years. Mortgage payments for a first-time buyer on average earnings would now account for around 42 per cent of take home pay compared with only around 18 per cent in 1996. However this still seems relatively modest compared to the height of the late 80s house price boom when the ratio was more than 55 per cent. House prices have increased by more than 200 per cent since 1996, whereas earnings have increased by less than 50 per cent.
"The affordability of servicing the debt has been helped enormously by lower interest rates over this period. In 1997 base rates averaged 7.25 per cetn compared with 4.5 per cent now. This has helped to subdue growth in the first-time buyer affordability index in spite of the increase in prices.
"However, affordability is not just about servicing the loan. Deposit and income multiple constraints are equally, if not more, binding on first-time buyers and would prevent many from entering the market at all. Since around 2002 a gap has been widening between actual earnings and the earnings required to overcome income multiple constraints. This is in spite of a significant, if gradual increase in income multiples over the last five years. In 2001 the average income multiple for first-time buyers was 2.4x compared to 3.1x now. But as house price inflation has outpaced earnings growth more borrowers have been excluded.
"With the average first time buyer property costing over £130,000, a first-time buyer on average earnings would have to raise a deposit of over £46,000 which could take up to 10 years to save up for.
"The reason why the proportion of first-time buyers has remained high is likely to be due to the large proportion of returners that fall into this category with access to both higher than average incomes and access to larger deposits. For many true, and particularly young, first-time buyers, the deposit and income multiple constraints are too strong and prevent them entering home ownership at all. This is even before considering other calls on their income such as student debts."
