For today’s first-time buyers the primary concern is being able to afford their deposit rather than meeting their mortgage repayments. The explanation is straightforward: the average deposit required by a first-time buyer needing a mortgage is £26,500 but their annual income is £32,500, which highlights the extreme difficulty in funding a deposit through savings.
Clearly this will prevent many prospective first-time buyers from entering the housing market at all, making mortgage interest affordability calculations academic for many.
For now there seems little evidence of an increase in the availability of higher loan-to-value mortgage finance other than with punitive lending criteria. Indeed, figures from the Financial Services Authority (FSA) indicate that just over 74% of all mortgages were at loan-to-value ratios of 75% or below in the first quarter of 2011, the joint highest proportion since the onset of the credit crunch.
Second-steppers
For second-steppers the deposit is an equally concerning issue. Through the bulk of the noughties those looking to move onto the second rung of the housing ladder could have met the cost of their second deposit through the house price growth of the preceding five years. From the beginning of 2000 to the first quarter of 2008, five-year growth for the mean UK house price exceeded the average deposit for a homemover by an average of just under £23,000 (see graph 4.2).
Since then homemovers have been unable to fund their next move out of five-year house price growth, effectively excluding a substantial chunk of second-steppers from the housing market. In the first quarter of 2011, the five-year growth in the average UK house price was £2,000; the average deposit for a home mover was £58,000.
Against this context it becomes clear that the 2.7 million cumulative shortfall in transactions since the beginning of the credit crunch is as much a function of an inability to buy in the lower tiers of the market as an unwillingness to do so.
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