Owning your own home is almost impossible for low income couples
RICS accessibility and affordability indices, July 2008

It is now almost impossible for a low income couple to become home owners in Great Britain according to the RICS accessibility and affordability indices.

A first time buyer couple, earning lower quartile earnings (totalling £27,516 after taxes), will now have to save over 100 percent of their joint take home pay, to build up the £27,738  needed for the up front buying costs on a typical home (including the deposit, fees and stamp duty). This equates to a substantial rise from the low point of 21 percent of income required in 1996.

This worsening accessibility recorded by RICS has been driven by the reductions in loan-to-value ratios that lenders are offering buyers, as well as the continued burden of stamp duty and the other costs of buying a home.  Lenders are forcing would-be buyers to put up more money for deposits and given that real income growth has stagnated, getting onto the housing ladder is now only slightly below the all time worst level seen in Q3 2004.

However, affordability has improved for those lucky enough to be able to access the market. A couple on lower quartile incomes now has to spend 34.5 percent (down from 37.2 percent in Q1 2008) of their combined take home pay to service their mortgage, significantly below the all time high of 46.5 percent in Q4 1989.  The improvement in affordability can be attributed to falling prices and tighter lending conditions. Smaller mortgages mean smaller repayments in a time when interest rates are relatively low.

London is still the most difficult place for a couple on lower quartile income earnings to access the housing market. In London (133 percent of take home pay), the South East, Eastern region and South West, couples have to save over 100% of their combined take home pay to reach the levels necessary to get a foothold on the property ladder. The North East (72.9 percent) is the most accessible region followed by Scotland (74. percent) and the North West (76.8 percent).

London is also the region with the worst affordability levels. First time buyer households have to spend the highest proportion (45.6 percent) of their after tax income on mortgage payments compared to only 26.4 percent in the North East region.

RICS senior economist David Stubbs, said:

“Access to the housing market has deteriorated as the credit crunch has taken hold of the mortgage lender sector. With mortgage approvals declining, the picture does not look like improving in the latter part of 2008 and first time buyers will find their path to home ownership increasingly blocked.

“Those who are able to access the housing market, will find that a bigger deposit will mean that mortgage repayments are reduced but with real incomes stagnating this will seem like light relief only. Homeowners’ finances will continue to struggle with rising food and fuel costs making the burden of mortgage repayments even more difficult.”
ENDS

Notes for editors:
The RICS accessibility Index is a UK industry first, it calculates the upfront cost of an average priced home bought by First time buyers as a percentage of average annual take home pay. The inclusion of a varying loan-to-value ratio helps provide a more accurate picture of the interaction between house prices, incomes and required deposit. Stamp duty costs, when the average price of a FTB house is above the zero rate threshold, is also included in our calculations of up-front cost (we have not taken into account other up-front costs). The problem with using an affordability measure in isolation is that it gives a narrow picture of difficulties faced by prospective buyers, and does not give any information on the ability to muster up a sufficient deposit.

About RICS
RICS (Royal Institution of Chartered Surveyors) is the mark of property professionalism worldwide. It covers all aspects of property, construction and associated environmental issues. RICS has 86,000 chartered members (FRICS and MRICS) and 55,000 members in other categories of membership (TechRICS, trainees and students) globally. It represents, regulates and promotes the work of these property professionals throughout 146 countries. RICS is governed by a Royal Charter approved by Parliament which requires it to act in the public interest. It is also a professional regulatory body approved by Government (HM Treasury). Visit www.rics.org/press

RICS housing market survey is the longest running monthly survey of house prices in the country, collecting data since January 1978.  The survey is cited by the Bank of England's monetary policy committee at its monthly interest rate setting meetings.

For further information, please contact:

Stephen Thornton
Senior Press Officer
RICS Communications
T: +44 (0)2076951682
M: 07969 177150
E: sthornton@rics.org