PROPERTY NEWS

Rising cost of living is putting off first time buyers in the United Kingdom despite the fact that mortgage costs have fallen below 2003 levels, new research shows.

Propertywire.com reports that a new Ability to Buy Index from the Royal Bank of Scotland paints a mixed picture for first time buyers in Britain.

While average mortgage payments have fallen to 2003 levels, it is now more difficult for first time buyers to get a foot on the housing ladder than during the 2009 recession.

“Our new index provides the most accurate picture available today of the squeeze on first time buyers, by including the effects of tax, National Insurance, earnings and rising living costs, in addition to house prices and interest rates,” RBS Group UK consumer economist, Fionnuala Earley, said.

“Our first results show that higher living costs are making it more challenging for first time buyers to enter the market, despite the lowest mortgage payments in almost a decade. But the news is not all bad as inflation is now beginning to fall and assuming earnings still rise and interest rates remain low, this should help to improve the ability for first time buyers to enter the market,” she added.

The index shows that it is harder to buy now than in the 2009 recession. This contrasts with house price to earnings measures which suggest conditions have improved. But the rising cost of essentials during 2011 has outweighed the effect of falling house prices and rising incomes on the ability to buy.

Ability to buy has deteriorated most in the East of England, East Midlands and London since 2009. The biggest improvements were in Northern Ireland and the North East.

In the third quarter of 2011 a first time buyer repayment mortgage took up just 52 per cent of discretionary income; that is income after tax, National Insurance and spending on essential goods and services. At the peak of the market in 2007 this proportion was 84 per cent and in 1990 it was as high as 123 per cent.