Tuesday, November 13, 2007

Average first-time buyer spending 20.4% of monthly income on mortgage.

First-time home costs 'up again'

First-time buyers are finding it increasingly expensive to get onto the property ladder, says the Council of Mortgage Lenders (CML).

Posted by garyb @ 12:04 PM (1104 views)
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9 thoughts on “Average first-time buyer spending 20.4% of monthly income on mortgage.

  • The average first time buyer spends 20.4% of monthly income on mortgage payments (repayment and interest). Interest alone was 17.5% of income. The average first time mortgage is £118,750. A typical mortgage rate is 5.5% (initial two- or three-year fix, not the SVR).

    Based on those figures, the average FTB is paying just under £550 a month interest-only. Assuming most FTBs are couples, they’re paying £275 each. Therefore the average income is £1571 per month, presumably after tax. That equates to just over £2000 before tax, or £24k annual.

    It doesn’t actually sound so bad when you look at it that way! Have I missed something?

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  • The word buyer is used in the singular which would indicate to me 1 person rather than 2 and the repayment terms are interest plus capital repayment so I think your calc is a little on the lean side.

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  • Ok I checked the original press release at the CML’s website which also contains the full set of figures.
    These are the figures for September, not October. As the press release makes clear: “Today’s figures reflect conditions before the problems associated with Northern Rock emerged”.

    Average first time mortgage: £118,750
    Average first time Loan-to-Value: 90% (therefore average FTB house price £131,944, clearly not in the southeast!)
    Average first time buyer’s income: £35500 (nice money if you can get it outside the southeast)
    Average first time buyer’s interest-only payments as % of income: 20.4%
    Average mortgage rate (both FTBs and movers): 6.02%

    So we’re talking about well-paid FTBs buying cheap houses. Hmmm.

    More figures below, for those who are interested.
    Interest payments are nearly £600 per month (6.02% * £118,750 / 12).
    Repayment over 25 years would be £775pcm; over 35 years £685pcm.
    £35,500 per year gross salary = £2,958 per month gross = £2,153 per month net for a single tax payer.
    So that 20.4% of income actually relates to pre-tax (gross) income. There’s no mention of how many FTBs are singles or couples or what effect that has on the figures.

    Here’s where it gets interesting. Under the table headed “Methods of repayment”, for first-time buyers:
    65% have a standard capital-and-interest mortgage
    8% have an interest-only mortgage with an alternative repayment scheme (most likely an endowment mortgage?)
    22%* have an interest-only mortgage with no repayment vehicle specified
    5% have a mixture of repayment methods

    *Note that the 22% of interest-only loans is the highest ever since 1999! This is just the FTB stats; for home-movers the interest-only loans form 26% of the market, also the highest since 1999. However in the small print they explain that their survey methodology changed in April 2005 and that figures before and after that date aren’t strictly comparable.

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  • Also, s2r1 posted an article from the Office for National Statistics (http://www.statistics.gov.uk/cci/nugget.asp?id=285) stating that the median weekly pay for full-time employees is now £457 gross (before tax); which works out to just under £24k per year. This means the CML’s average first time buyer earning £35.5k is way above average. It really is only the rich who can afford to buy now!

    (Sorry for posting so many comments!)

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  • Thanks drewster.

    When I saw the article, I couldn’t help wondering how they came up with only 20.4% of pay.
    If I have understood your calculations correctly, a single person on the national average salary of (alledgedly) £35,500 with a 25 year repayment mortgage pays £775 out of their £2153 net pay per month hence 36% of their net pay gone. Not 20.4%
    Very rarely do I see a job advertised at over 30K in my area and there is very little housing for £118,000.

    Talking about national average pay isn’t much use due to the huge disparity in wages between the centre of London and the more remote parts of the UK. We need a better way of explaining typical wages and house prices on a regional basis or something.

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  • Drewster, you hit the nail on the head, the average wage is heavily weighted downwards by part-time working, minimum wage employment, regional variations etc. Therefore the statistics are misleading, what we can say is that any person or couple with an income of less than £30K per year is more or less effectively priced out of even the humblest of properties.

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  • I know lots of young people who can’t afford their own place.

    It’s really unacceptable, and it’s Gordon’s fault.

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  • The inflation in the UK is not in line with the recent surge in house prices. The current level of growth in the housing sector is not sustainable and as a result there is going to be a crash in the housing market.This will leave many of us with more debt and nagative equity. Please don’t watch ”How to be a property investor”. It is a commercial programme sponsored by the property developers aimed at fooling the public into beleiving that investment in the property market is still profitable. We are heading for a hidden recession.

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  • the northerner living in oz says:

    Where do these people get their figures?
    I had a brief look at Job Agencies before I left the U.K
    A typical wage in the U.K in manufacturing
    Is 10k to 25k.
    Unless you have a senior position at a company.
    Have rich parents , work 6 or 7 day’s per week.
    You are priced out of the housing market.

    I just cannot believe that a Labour government has allowed this to happen

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