FTB’s hit hard by affordability constraints, says CML

The Council of Mortgage Lenders says affordability constrains are worsening for first-time buyers.

The trade body has found that 78% of adults want to be home owners within two years, and 84% aspire to owner-occupation within a decade.

Both figures are significantly higher than the current level of home ownership, which extends to 70% of the population.

It says first-time buyers are now borrowing, on average, 3.3 x their income and this figure has been trending upwards since December 2005, when it stood at 3.13 x income.

It says the proportion of first-time buyers taking out larger loans relative to their income has also been growing.

In April 2005, 11% of first-time buyers borrowed four x their income but, by March 2007, the proportion had risen to 21%.

A spokesman for the CML, says: Despite worsening affordability, however, there has been no decline in first-time buyer activity since 2004.

Lenders base the decision to offer a mortgage on more than just the income multiple. Buyers with larger deposits may, for example, be able to borrow higher multiples of income.

Since the late 1990s, the average deposit paid by a first-time buyer has been largely unchanged, at around 10% of the value of the property.

But there has been an increase in the number of buyers providing substantial deposits.

” In 2006, more than 20% of first-time buyers paid a deposit that was larger than their reported annual income.

“One in 10 provided a deposit of more than twice their income.

“Some of these may be former owner-occupiers returning to the market, perhaps after a period working abroad or renting.

“These returners are captured in our first-time buyer data if they did not own a property at the time of their current purchase.

“Some of these may be former owner-occupiers returning to the market, perhaps after a period working abroad or renting.

“These returners are captured in our first-time buyer data if they did not own a property at the time of their current purchase.

“It has been estimated that up to 20% of those classified as first-time buyers are in fact, returners.”

The spokesman adds: “Affordability will therefore remain constrained, and the growing tendency for parents and other relatives to help young people become home owners looks likely to sustain the number of first-time buyers for the foreseeable future.

“This will result, however, in housing equity held by older owner-occupiers being recycled to their children.

“That will help sustain house prices, creating wealth for existing owner-occupiers and giving them more potential to help their children.”