It improved most in Northern Ireland and deteriorated most in the East of England and even though the average UK first time buyer’s earnings increased, the big rise in living costs prevented further improvements, according to the Royal Bank of Scotland Ability to Buy Index.
Lower house prices mean the average mortgage payment faced by a first time buyer fell by £20 per month in 2011, to 51% of discretionary income, from 53% in 2010.
The average UK first time buyer will have to save for 35 months to get a 10% deposit and 45 months if buying in London. The end of the stamp duty holiday has increased costs for first time buyers.
‘Our latest ability to Buy Index improved by 1% in 2011 to its best level since 2009. But the size of improvement was hindered by higher living costs. More simplistic measures of affordability suggest a much bigger improvement than this. But by including living costs we get a much more accurate picture of the real ability to buy. Without the surge in prices of essentials, particularly transport, first time buyers’ ability to buy would have improved to 2003 levels in 2011,’ said Fionnuala Earley, RBS Group UK consumer economist.
Even though the average first time buyer’s after tax income grew in 2011, higher inflation meant that the amount of income available to save for a deposit or meet mortgage payments fell compared with 2010,’ she explained.
‘Nevertheless, falling house prices meant that the proportion of discretionary income needed to meet mortgage payments was lower too. But a typical first time buyer will still have to save for almost three years to raise a 10% deposit, even after taking into account further modest falls in prices.
‘The government’s NewBuy scheme will underwrite buyers of new build properties who have a minimum 5% deposit. But at around £10,000, even saving a 5% deposit will be a hurdle for those in London and the South East of England. On top of that, the end of the stamp duty holiday will hit this same group of first time buyers who are already the most stretched. They will face a stamp duty bill of more than 10% of their annual discretionary income,’ she added.
And figures from the Bank of Scotland show that a quarter of Scottish first time buyers have benefitted from the stamp duty holiday. An extra 23% of first time buyers have been exempt from paying stamp duty as a result of the government raising the starting threshold from £125,000 to £250,000 over the past two years.
The temporary increase in the threshold has meant that nearly all first time buyers in Scotland, some 99%, over the period have not had to pay stamp duty.
An estimated 7,100 first time buyers in Scotland have benefitted from the increase in the threshold over the past two years with approximately 30,500 first time buyers in total paying no stamp duty.
Returning the starting threshold to £125,000 will result in one in four first time buyers paying stamp duty.
