First-time buyers face financial breakdown
By SEAN POULTER Last updated at 19:24pm on 13th September 2006
Many first-time buyers are borrowing well beyond their means
First-time buyers are risking financial meltdown with new figures showing they are taking on record loans running to an average of £110,500.
Spiralling house prices mean young adults now find they are forced to borrow a record 3.24 times their annual income if they want to get a foot on the property ladder.
There is no sign of a let-up, as two new studies show the market and prices are continuing to boom. The borrowing figures came from the Council of Mortgage Lenders (CML), which joined others in warning first-time buyers not to take on huge loans they cannot afford to repay.
The CML, which speaks for banks and building societies, said the prospect of higher interest rates could make it difficult to meet monthly repayments.
The comments echoed warnings issued this week by Citizens Advice, which said that more than one in ten young buyers - 13per cent - have missed at least one mortgage repayment in the past year. While anyone who repeatedly misses payments risks losing their home.
CML director general, Michael Coogan, said: 'Higher income multiples, coupled with higher interest payments as a proportion of income, suggests that they (first time buyers) are continuing to stretch themselves.'
He said: 'It is essential first-time buyers, and all borrowers, look at their finances to ensure they are taking sensible steps to ensure their debts are manageable, especially as the markets are expecting a further interest rate rise later this year.'
He suggested young buyers could take out fixed rate mortgages of buy home loan protection insurance, which should cover mortgage repayments if the buyer suddenly loses their job or falls sick.
The loan ratio of 3.24 times average salary of first-time buyers is an all-time high and compares to 2.3 during the 1980s property boom. However, this does not show the whole picture. For buyers in London and the south are borrowing up to five or six times their salary. (AtW's comment: Franko please make sure you maintain your house well, when you go bust sasguru will buy it and I may rent it off him for a fiver)
And there has also been a surge in so-called self-certified loans, where huge mortgages are granted without any checks on the claimed income of the buyer.
The mega-mortgages are made possible by a decision by banks and building societies to scrap the traditional system of lending three times annual income.
The industry is now using so-called affordability tests looking at the household budgets of customers. These invariably lead to bigger loans.
House price rises have soared way ahead of increases in wages over the last 15-20 years with the result that young adults now feel they have to stretch their finances to the limit and borrow more.
In 1989, the average price paid by a first-time buyer was just £30,500. They were earning an average of £13,780 and borrowing £29,000.
Today, average wages for this group have gone up 148per cent to £34,216. However, the average price they are paying for a home has risen a staggering 302per cent to £122,800.
The net effect is that the average mortgage for the young buyer has had to go up by 280per cent to £110,500.
Citizens Advice is worried that many people simply cannot make their mortgage repayments and afford to live.
The organisation's chief executive, David Harker, said: 'We are very concerned about the numbers of people who are missing payments.
'Missing payments on mortgages or secured loans could lead to arrears and possibly repossession.' He added: 'We don’t want people to borrow far more than they can afford.
'There is also a big responsibility on lenders of both mortgages and secured loans to take into account a person's full financial commitments, and ensure that customers can afford repayments on any additional lending.'
Rising house prices have also put pressure on people trying to move up the property ladder. For some 24per cent of all movers are taking out huge mortgages of between £250,000 and £500,000.
A study from the Royal Institution of Chartered Surveyors says the market remained strong in August, despite a quarter point increase in the base rate which took it to 4.75per cent.
It claims the market is at its strongest for more than two years. However, spokesman Ian Perry accepted many people are being priced out of the market saying: 'First time buyers will continue to struggle.'
The National Association of Estate Agents said the average asking price jumped 4.34per cent between July and August, taking it up to £216,014.
The organisation described the increase as a surprise and indicated that sellers - rather than agents - were over-valuing their properties.
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Don't you just like it when they say that on average it is over 3 times salary and average house price is like 120k, but then they say it is actually 216 grand, wtf?
By SEAN POULTER Last updated at 19:24pm on 13th September 2006
Many first-time buyers are borrowing well beyond their means
First-time buyers are risking financial meltdown with new figures showing they are taking on record loans running to an average of £110,500.
Spiralling house prices mean young adults now find they are forced to borrow a record 3.24 times their annual income if they want to get a foot on the property ladder.
There is no sign of a let-up, as two new studies show the market and prices are continuing to boom. The borrowing figures came from the Council of Mortgage Lenders (CML), which joined others in warning first-time buyers not to take on huge loans they cannot afford to repay.
The CML, which speaks for banks and building societies, said the prospect of higher interest rates could make it difficult to meet monthly repayments.
The comments echoed warnings issued this week by Citizens Advice, which said that more than one in ten young buyers - 13per cent - have missed at least one mortgage repayment in the past year. While anyone who repeatedly misses payments risks losing their home.
CML director general, Michael Coogan, said: 'Higher income multiples, coupled with higher interest payments as a proportion of income, suggests that they (first time buyers) are continuing to stretch themselves.'
He said: 'It is essential first-time buyers, and all borrowers, look at their finances to ensure they are taking sensible steps to ensure their debts are manageable, especially as the markets are expecting a further interest rate rise later this year.'
He suggested young buyers could take out fixed rate mortgages of buy home loan protection insurance, which should cover mortgage repayments if the buyer suddenly loses their job or falls sick.
The loan ratio of 3.24 times average salary of first-time buyers is an all-time high and compares to 2.3 during the 1980s property boom. However, this does not show the whole picture. For buyers in London and the south are borrowing up to five or six times their salary. (AtW's comment: Franko please make sure you maintain your house well, when you go bust sasguru will buy it and I may rent it off him for a fiver)
And there has also been a surge in so-called self-certified loans, where huge mortgages are granted without any checks on the claimed income of the buyer.
The mega-mortgages are made possible by a decision by banks and building societies to scrap the traditional system of lending three times annual income.
The industry is now using so-called affordability tests looking at the household budgets of customers. These invariably lead to bigger loans.
House price rises have soared way ahead of increases in wages over the last 15-20 years with the result that young adults now feel they have to stretch their finances to the limit and borrow more.
In 1989, the average price paid by a first-time buyer was just £30,500. They were earning an average of £13,780 and borrowing £29,000.
Today, average wages for this group have gone up 148per cent to £34,216. However, the average price they are paying for a home has risen a staggering 302per cent to £122,800.
The net effect is that the average mortgage for the young buyer has had to go up by 280per cent to £110,500.
Citizens Advice is worried that many people simply cannot make their mortgage repayments and afford to live.
The organisation's chief executive, David Harker, said: 'We are very concerned about the numbers of people who are missing payments.
'Missing payments on mortgages or secured loans could lead to arrears and possibly repossession.' He added: 'We don’t want people to borrow far more than they can afford.
'There is also a big responsibility on lenders of both mortgages and secured loans to take into account a person's full financial commitments, and ensure that customers can afford repayments on any additional lending.'
Rising house prices have also put pressure on people trying to move up the property ladder. For some 24per cent of all movers are taking out huge mortgages of between £250,000 and £500,000.
A study from the Royal Institution of Chartered Surveyors says the market remained strong in August, despite a quarter point increase in the base rate which took it to 4.75per cent.
It claims the market is at its strongest for more than two years. However, spokesman Ian Perry accepted many people are being priced out of the market saying: 'First time buyers will continue to struggle.'
The National Association of Estate Agents said the average asking price jumped 4.34per cent between July and August, taking it up to £216,014.
The organisation described the increase as a surprise and indicated that sellers - rather than agents - were over-valuing their properties.
--------------------------------
Don't you just like it when they say that on average it is over 3 times salary and average house price is like 120k, but then they say it is actually 216 grand, wtf?
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