Families being priced out of housing market

The housing charity Shelter warned yesterday of an affordability crisis in the homes market throughout southern Britain as average mortgage payments rise towards an unsustainably high proportion of average household incomes.

It said mortgage payments are now approaching the level seen in 1990, just before the last housing market crash.

In 1990, at the peak of the last housing boom, average mortgage payments for a first-time buyer were 20.5% of the average income of working households. This fell to 10.9% in 1996, but climbed back to 16.4% in 2002 and is set to reach 17.8% this year.

The proportion is already above 20% in London, the south-east and eastern regions. It has reached 21.9% in the south-west, which has emerged over the past two years as the area where housing costs have most outstripped household incomes.

In recent years, building societies have justified lending five or six times homebuyers' salaries on the grounds that low interest rates made repayments affordable. But Shelter has compiled an affordability index showing that it is becoming increasingly difficult for a household on the average regional income to meet the average mortgage payment for a first-time buyer.

It said: "By the end of this year, if forecasts for house prices and interest rates are correct, it will be more than 40% harder on average for people in the UK to become home owners than it was a decade ago."

In the south-west it will be 62% harder, in London and the eastern region 59% harder and in the south-east 49% harder. But in the north-east it will be only 8% harder in spite of a house price surge this year, and in the north-west 16% harder.

After the sharp increases in house prices, the number of first-time buyers was at its lowest level since records began 30 years ago.

Adam Sampson, director of Shelter, said: "Our affordability index shows that, as the housing crisis deepens, more and more people are unable to afford a home in the market. A more unaffordable housing market puts pressure on the limited supply of social housing and means more people are trapped in emergency housing.

"So, for the record number of families who are trapped in a cycle of bad housing, the prospect of a decent place to live is fading further into the distance year by year.

"In a country where levels of social housing are the lowest levels for over 50 years it is no longer a question of 'if' we should build but 'how quickly'. The government needs to take an urgent grip on the crisis - earmarking some serious resources in the upcoming spending review for affordable housing."

Shelter's findings showed:

• South-west High prices and low wages mean this is now the least affordable part of the UK. Repayments will account for 21.9% of household earnings by the end of 2004;

• South-east Ever-rising prices mean repayments will reach 21.2% of incomes in 2004, the second highest in the UK;

• London Even wages in the capital cannot keep pace with soaring prices. Repayments will reach 21.1% of incomes in 2004;

• East Relatively affordable until 1999. Sharp price rises in the past five years mean repayments are forecast to account for 20.8% of incomes in 2004;

• West Midlands Saw greatest improvement in affordability as prices, then interest rates, fell. The repayment ratio stayed below the 1994 level until 2002. Sharp deterioration in the past two years;

• East Midlands Huge price hikes in the past two years mean repayment ratio is forecast to rise from 11.4% in 2001 to 15.6% in 2004;

• Yorkshire and Humberside Housing more affordable in 2001 than 1994 thanks to low interest rates. Price and rate hikes mean sharp deterior-ation in affordability by 2004;

• North-west Price rises broadly matched by falls in interest rates until 2002. Repayment ratio up from 10.5% in 2002 to a projected 13.5% in 2004;

• North-east More affordable in 2003 than 1994. Forecast to be the most affordable part of the UK in 2004;

• Wales Since repayments bottomed out at 10% of the average income in 1996, the market has become steadily more unaffordable. Repayments forecast to be 14.1% of incomes by the end of 2004;

• Scotland Second most affordable part of the UK, with repayments forecast to take up 11.9% of incomes by the end of 2004, up from 8.8% in 1996;

• Northern Ireland Most affordable part of the UK in 1994. Market 60% harder to access by the end of 2004 with repayments 13.7% of incomes.