RBS data suggests that it is presently more difficult for first time buyers to get a foot on the property ladder than it was during the 2009 recession.
The new RBS Ability to Buy Index, a quarterly survey, takes into account the effects of income tax, National Insurance (NI), earnings and living costs, in addition to house prices and interest rates.
The first set of Index results show that first time buyers’ ability to buy has receded because higher living costs are outweighing the fall in house prices and increase in earnings. This, despite mortgage payments being at their lowest levels for nearly 10 years.
However, RBS says that with inflation falling and if earnings continue to rise and interest rates remain low, circumstances should improve.
The Ability to Buy Index has deteriorated for the three consecutive quarters (to end Q3 2011). In Q3 2011, the Index recorded a rating of 98.6 compared with an average of 96.5 during 2009 – the lower the rating, the greater the ability to buy. These results contrast markedly with other measures such as the house price to earnings ratio which suggest conditions for first-time buyers have improved. In Q3 2011, the average first-time buyer’s repayment mortgage accounted for 52% of their discretionary income (after tax, NI and spending on essential goods and services have been deducted) compared to 84% at the peak of the market in 2007 and 123% in 1990.
The ability to buy has deteriorated most in the East of England, East Midlands and London since 2009. The greatest improvements have been experienced in Northern Ireland and the North of England.
The Index calculates that on average it takes a first-time buyer three years to save for a 10% deposit. This assumes that earnings grow annually at a modest rate of 2.5%, that no rent is paid and that 30% of discretionary income can be saved.
However, in London, it would take three years 11 months, whereas in the North of England it would only take two years and five months.
Graham Felstead, head of intermediary channel, NatWest Intermediary Solutions said: “Most of us expect 2012 to be as equally challenging a year as the last two or three years. The Ability to Buy Index seems to bear this out for first-time buyers. It might be a little surprising that with house prices falling and incomes increasing