First-time buyers' costs hit record

First-time home buyers are shelling out record amounts to get a mortgage, the Council of Mortgage Lenders said yesterday, as soaring house prices increase the difficulty of getting on to the property ladder. The average first-time buyer paid 3.21 times their income in June to take out a new loan, up from 3.20 in May and 3.06 in the same month last year. The data coincided with Nationwide revising its forecast for house price rises for 2006 to 5% from the 0-3% predicted in December.

Despite the rise in prices and the increasing affordability pressures, more buyers were taking out loans, the CML said. In June, the number of new loans jumped by 14% on the month to 39,500, the highest level since December 2002 when it was 44,000. The number taking tracker loans rose by 24% to 38,800 in June while fixed-rate mortgage products declined only slightly by 2% to 140,600.

"Even though average first-time buyer income multiples are the highest on record, first-time buyers are still finding ways of getting on to the property ladder," said Michael Coogan, director general of the CML. "It is highly likely that more and more young buyers are turning to parents and grandparents to help them raise the deposit for their first home." Recent research by Alliance & Leicester found that parents were paying on average £17,677 to help their children.

Nationwide said that despite the recent interest rate increase, a robust economy, stable labour markets and limited supply would continue to support house prices. The revival of the London market was also likely to continue and boost neighbouring regions.

"The resilience of the market so far this year in the face of deteriorating affordability suggests that there is still enough demand in the market to support prices," said Fionnuala Earley, an economist at Nationwide. "However, we expect some softening towards the very end of the year mainly due to affordability, but also reinforced by the surprise increase in interest rates."