First-time buyers spend over one third of earnings on mortgage

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by Kay Murchie

Figures from the Council of Mortgage Lenders have established that mortgage repayments are swallowing up 35% of young people’s disposable monthly income.

Financial advisers warned that large mortgages are ‘a disaster waiting to happen’.
The figures show the worrying financial pressure on young first-time buyers.

Increasing utility bills and the rise in other household bills are piling on the pressure. The 10-year house price boom has meant that first-time buyers have taken out record mortgages. On average, they need to borrow £118,000 compared to £71,000 5 years ago - an increase of 66%, outstripping the average annual pay rise of 3%.

Philippa Gee of financial advisers Torquil Clark, said this is a disaster waiting to happen. The situation may be even more serious than it was in the early 1990s because so many other costs are spiralling.

The financial squeeze may be too great for many. The extraordinary prices for petrol, gas and electricity combined with mortgage payments will push people over the edge. It will have a devastating effect on many people’s lives, added Ms Gee.

Furthermore, a record number of first-time buyers are having to pay stamp duty. Only 38% avoided the tax, which is charged on all homes bought for £125,000 or more.

It is believed that around 125 homes will be repossessed every day during 2008 as homeowners fight to keep costs under control. Those most vulnerable are likely to be young buyers who bought a property recently at record prices.

An increasing amount of people are putting their homes on the market but are unable to find a buyer. Since September, the number of homes advertised for sale soared 42%.

Potential buyers are in ‘wait and see mode’ as many reports are highlighting property price falls. The Royal Institution of Chartered Surveyors (Rics), said house prices fell for the sixth month in a row last month.

Halifax bank and the Nationwide Building Society have recently announced falls in annual house price inflation.