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Rising living costs dampen FTB prospects

Conditions for first-time buyers improved marginally in 2011 but continued to be hampered by rising living costs, according to the latest ability-to-buy index from Royal Bank of Scotland.

The index shows that first-time buyer conditions improved by 1% last year overall.

There was a 1.4% fall in first-time buyer house prices and a 1.1% increase in gross earnings during the year, which equated to a £20 drop in average mortgage prices, but RBS says these improvements were offset by a large rise in living costs.

Although earnings increased, consumer prices rose by 4% compared with 2010, meaning discretionary income fell by 0.4%.

Gross earnings for the average first-time buyer household averaged £24,905 in 2011, but after tax, national insurance and spending on essentials, discretionary income was just £13,205 – 69% of gross earnings. This proportion fell in every part of the UK in 2011, except in the North where it was unchanged.

The price of an average first-time buyer house fell by 1.4% in 2011 and is expected to continue to fall in 2012. Mortgage payments for an average first-time buyer household in 2011 fell by £20 per month and as a result, mortgage payments took up 51% of discretionary income in 2011, down from 53% in 2010.

The ability to buy improved most in Northern Ireland where there was a 13% improvement in 2011 compared with 2010 and in the North East which saw an 8% improvement. The ability to buy deteriorated most in the East of England where it was 8.6% worse in 2011 than in 2010. It also deteriorated in the North West, Scotland and London.

Graham Felstead, head of intermediary channel at NatWest Intermediary Solutions, says the analysis shows a mixed picture for first-time buyers, with falling house prices and wage increases on the upside, but inflationary pressures on the downside.

He says: “However, the bottom line is that the ability to buy did improve in 2011, albeit by a small amount, and some of the hardest hit regions in the UK have seen a significant uplift in conditions.

“With inflation expected to continue its downward trend, the future could start to look better for first-time buyers.”

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