This short-term Government initiative to aid home buying may slow the decline in homeownership but it will not alter the shape of the market. We still expect the private rented sector to grow by 200,000 households a year over the medium term.

Although there is no set income required to participate in Help to Buy, Government figures show that those borrowing through the scheme have an average household income of £45,000, which is in line with the incomes of the average first-time buyers already accessing the market. We do not expect this to change.

With the exception of London, our analysis suggests the average income of the excluded households we are defining, falls well below that. In the South of England the median income of an ‘excluded household’ is £36,710, in the Midlands and Wales it is £25,410 and in the North of England it is £22,662. In London the median income of an ‘excluded household’ is £54,756.

Government figures revealed that those borrowing through Help to Buy, which allows buyers to purchase with a 5% deposit, are buying homes worth on average £163,000 and paying £900 a month.

However, our calculation shows that by putting down a larger deposit and benefitting from a more competitive mortgage rate, the average first-time buyer is purchasing a more expensive home at £197,000 but paying less (£740) on a monthly basis.

Interest rates are at an all time low. Monthly payments can only rise. A strengthening economy and falling unemployment increases the likelihood that the Bank of England will raise interest rates in 2015, rather than in 2016. Mortgage rates could rise sooner. Borrowers who overstretch themselves now may find themselves unable to manage later, particularly in markets where house prices are high relative to income.

Taken from
Spotlight: Bridging the Gap in Housing