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First-time buyers borrow record amounts

First-time buyers risk over-stretching their finances by borrowing 3.24 times their income to buy their homes, the highest amount ever, it was announced today.
The figures for July, published by the Council of Mortgage Lenders (CML), follow a stark warning from Citizens Advice that 770,000 buyers in Britain had defaulted on their mortgage, and that 13% of 21- to 24-year-old homeowners had missed at least one mortgage payment in the past year.

The average first-time buyer took out a mortgage of £110,000, 90% of the value of the property they were buying.

The typical income of a first-time buyer has increased from £32,285 to £34,216 since July 2005, an increase of £1,931. However, the average amount borrowed on a mortgage for a first property has increased by more than £10,000 over the same period.

The interest payments alone on the typical new buyer's mortgage accounts for 16.7% of monthly income.

Michael Coogan, director general at the CML, said: "First-time buyers are continuing to find ways of getting a toehold on the property ladder, showing just how popular home-ownership is to many young people.

"But higher income multiples, coupled with higher interest payments as a proportion of income, suggest that they are continuing to stretch themselves to do so."

Drew Wotherspoon of John Charcol, the UK's leading independent mortgage adviser, said the Citizens Advice report on mortgage defaults showed that the UK's "love affair" with home ownership was "stronger than ever".

"A mortgage is the largest financial commitment most people are ever likely to make and they should always seek professional advice on what they can and cannot afford before taking a home loan out," he said.

"Carefully considering every eventuality is an important process, which allows borrowers and lenders to determine the appropriate level of repayments."

Howard Archer, chief economist at Global Insight, said pressure on first time buyers would eventually calm the property market. "If house prices continue to move up, the multiples facing first-time buyers will become even more daunting and they are likely to be increasingly squeezed out of the market.

"Furthermore, mortgage interest rate payments will rise even further should the Bank of England raise interest rates again before the end of the year, which is highly possible. In addition, rising unemployment and soaring utility bills are adding to the pressure on many first time buyers," he said. "If first time buyers are increasingly squeezed out of the housing market, this will reduce overall demand and should cause prices to lose momentum."

http://money.guardian.co.uk/property/mortgages/story/0,,1871598,00.html
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