First property costs high proportion of pay

First-time buyers now spend more than a third of their take home pay on mortgage repayments, research showed today.

The mortgage lender Cheltenham & Gloucester said single people taking their first step on to the property ladder spent an average of ?33.90 of every ?100 of net pay on their mortgage during the last quarter of the year.

The figure, which covers England, Scotland and Wales, is up slightly from the ?33 per ?100 which they spent during the second quarter of the year.

The current level is considerably higher than the 22.4% of pay that a mortgage took up in 1996, but is well down on the 65.3% reached in 1990.

For existing single homeowners affordability actually improved slightly during the period, falling from ?34.20 of ?100 of take-home pay in the second quarter, to ?33.80 in the final three months of the year.

The burden of mortgage repayments for people buying their first property as a couple were significantly less at 18.8% of post-tax pay; couples who were existing homeowners spent around 17.4% of pay on repayments.

Jon Pain, Cheltenham & Gloucester's managing director, said: "It is very hard to believe house price inflation will not slow during 2004, given the likelihood of further increases in interest rates and today's high house price earnings ratio.

"Much has been made recently of the current high levels of household debt. The fact that debt levels are so high tends to make consumers very sensitive to higher interest rates - as does housing affordability."

He said this should restrain the monetary policy committee's hand as a relatively small rise in interest rates would probably go a long way to curbing demand.

Mr Pain continued: "A quarter or half percentage point rise during 2004 may well be judged sufficient to keep inflation under control and, in turn, keep affordability at favourable levels."

A regional breakdown of mortgage repayments during the second quarter of 2003 showed that single first-time buyers in the south-west faced the highest payments as a proportion of take home pay at 43.3%, followed by those in the south-east at 41.9% and greater London at 37.2%.

Repayments were lowest in Scotland at 22.2%, followed by the those in the north of England at 23.9%.