Affordability worsens for first-time buyers in UK

LONDON - Affordability for first-time buyers has worsened, despite the slowdown in the housing market, Britain's Council of Mortgage Lenders (CML) said overnight (NZ time).

Its latest figures showed it was becoming increasingly expensive for first-time buyers to get a foothold on the ladder, even though growth in property prices has declined.

The number of first-time buyers being hit with a stamp duty bill jumped 8 per cent in the past year, while those vying to take their first step in the property market are also being forced to borrow higher multiples of their income.

This increase in costs is thwarting many people's dreams of home ownership, the data revealed, with first-time buyers accounting for the lowest proportion of house purchases in almost 1-1/2 years.

Michael Coogan, the CML's director-general, said: "Overall, affordability has worsened a little, especially for first-time buyers.

"Over the period of a year, small monthly changes can, nevertheless, be significant -- as the rise in the proportion of mortgage borrowers required to pay stamp duty shows."

The proportion of first-time buyers paying stamp duty -- levied on properties bought for 125,000 ($360,438) pounds or more -- rose to 56 per cent in August from 48 per cent a year ago.

An increasing number of home-movers are being hit with the tax too: only 15 per cent of movers escaped the tax in August, compared to 21 per cent a year earlier.

Despite doubling the threshold from 60,000 to 120,000 pounds in last year's Budget, Chancellor Gordon Brown has refused to raise the stamp duty threshold in line with the boom in house prices -- meaning more people are being dragged into the net when they buy a new home.

Stamp duty receipts have more than tripled since 1997-98, rising from 3.5 billion to 12.2 billion pounds, buoyed by a 22 per cent increase last year, according to recent figures from HM Revenue & Customs.

Stamp duty is charged at 1 per cent of the value of properties worth between 125,000 and 250,000 pounds; 3 per cent on those bought for 250,000-500,000 pounds and 4 per cent on homes worth anything over that.

First-time buyers are also being forced to stretch themselves further to secure their first home. While the median first-time buyer mortgage remained at 90 per cent of the property value, typical income multiples rose to 3.27 in August, up from 3.24 the previous month and 3.08 on the year.

First-time buyers spent 17.1 per cent of their income on mortgage interest payments -- the highest since February 2005 and up from 16.5 per cent in August last year.

Overall, fist-timers accounted for just 35 per cent of the total number of house purchase loans taken out in August -- the lowest proportion since April 2005.

Across the market, the number of fixed rate loans fell to 60 per cent of new mortgages, down from a peak of 76 per cent in November and December last year.

Trackers, however, rose in popularity, accounting for 25 per cent of new loans -- their highest proportion on record.

"Borrowers are falling into two camps," said Coogan. "There are those who believe rates are near their peak, and who are confident enough to risk a short-term rise in rates for the pricing benefits offered by discounts and trackers.

"And there are those who want greater financial certainty, who may well be increasingly choosing longer-term periods over which to fix their rate."

He anticipated "some moderation" in housing market activity during the rest of this year, but said the market was continuing to outperform earlier CML forecasts.

House prices rose 1 per cent in September, according to the Halifax, but annual inflation dropped to 8 per cent, 0.2 per cent lower than the previous month.

- REUTERS