First-time house buyers face record levels of debt

14th July 2007

First-time house buyers are being forced into record levels of personal debt to get on the property ladder, it was disclosed yesterday.

Rising tax, interest rates and house prices mean that houses are less affordable than ever, according to figures released by the Council of Mortgage Lenders (CML).

The average house buyer needed to borrow 3.37 times their income to secure a home in May, the highest figure recorded and up from 3.33 in April.

Mortgage interest payments now account for 19.1 per cent of a first-time buyer's income, the highest level for 15 years.

The figures seem certain to rise as the latest data do not include the last two interest rate rises.

Record numbers are also paying stamp duty, on average £1,458.

During May, 60 per cent of purchases by first-time buyers were liable for the tax, a rise of eight per cent on the same month last year.

Michael Coogan, the director general of the CML, said: "For anyone wanting to get a foot on the property ladder or move house, each month affordability is becoming worse.

"The record number of borrowers who are now paying stamp duty makes a difficult situation even worse."

Oliver Marc Hartwich, the chief economist at the think-tank Policy Exchange, said: "It is a normal human aspiration to want to own your own home, but that is now all but impossible for a large number of young people.

"The main reason is soaring house prices, but the Government has made it even more difficult for first-time buyers by presiding over a regime of rising stamp duty."

The proportion of first-time buyers' income taken up by mortgage interest repayments peaked at 25 per cent shortly before the housing crash and recession in the late 1980s and early 1990s. While today's 19 per cent falls short of that, it has increased greatly from around 11 per cent in the past five years.

Many economists believe it is a clear sign that the housing market boom is over, even though property prices are continuing to rise.

The Nationwide Building Society said that annual house price inflation reached 11.1 per cent in June, its highest rate in more than two years, although that rate is slowing, offering hope that the market is cooling.

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