Rising bills put the squeeze on first-time buyers

Tuesday, 31 January 2012 12:32 PM

It is more difficult for first-time buyers to get on the housing ladder now than during the 2009 recession, according to a new study by RBS.

The bank's new ability to buy index says that despite the lowest mortgage payments in a decade first-timers have been squeezed by tax and national insurance rises, flat earnings and rising living costs.

The growing cost of essentials in 2011 has outweighed the effect of falling house prices and rising incomes.

The index has deteriorated for three consecutive quarters to a low of 98.6 in the third quarter of 2011 compared with an average of 96.5 in 2009.

Since 2009 the ability to buy has deteriorated most in the East of England, East Midlands and London. The biggest improvements came in Northern Ireland and the North East.

The good news is that low interest rates mean that even with the squeeze on household income the debt-servicing burden has fallen to 52 per cent of discretionary income. That compares with 84 per cent in 2007 and 123 per cent in 1990.

And although low interest rates and squeezed discretionary income mean it will take longer to save for a deposit, the situation has improved since 2007.

Fionnuala Earley, RBS Group UK consumer economist, 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 - 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."

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