First time buyer income gap at five year high

Posted on Saturday, March 5, 2016

According to the latest research by mortgage insurer, Genworth, the first time buyer income gap between average incomes and the incomes of buyers taking their first step onto the housing ladder has reached a post-recession high.

Analysis of ONS and CML data found that the average income to support a first time buyer mortgage in 2015 was £38,977, £11,332 higher than the average UK salary of £27,645. This is the widest gap there has been since the recession, signalling how access to homeownership in the UK has become increasingly exclusive.

The income gap has grown considerably in recent years in response to tighter lending criteria and rising house prices, making it harder to get onto the property ladder and blocking many from homeownership without support from a partner, family member or Government scheme.

In comparison, the gap between the average salary to support a first time buyer mortgage and the average UK salary was just £3,170 in 2000 and £7,505 in 2011.

Large first time buyer income gap of 20%+ spreads to every region except Northern Ireland

In every UK region in 2015 except Northern Ireland, the average income supporting first time buyer mortgages was more than 20% higher than the average worker’s salary, signalling the disparity in income between first time homebuyers and average earners.

In contrast, the only regions to experience this level of disconnect in 2000 were London, the South East and the South West.

In London the average salary supporting first time buyer loans is almost £58,500 or 65% more than the UK average. Compared with regional salary growth of just 1.3%, London has seen first time buyer incomes rise by 19.4%

This means that the first time buyer to average income gap in London equates to £23,142, more than double the UK average of £11,332. It is also 3.9 times more than in Yorkshire, where first time buyer to average income has the smallest gap. This again highlights the massive difference between the haves and have-nots.

First time buyer incomes rising faster than average incomes across the country

Over the last three years, average first time buyer incomes have risen more than three times faster than average UK salaries (£4,890 vs. £1,173) highlighting how homeownership is increasingly becoming the preserve of higher earners.

Outside London, Northern Ireland and the South East have also seen a large disconnect between first time buyer income and regional salary growth over the last three years. Regional salary growth of 3.1% in the South East has been overshadowed by 17.7% growth in first time buyer incomes.

The North West and East Midlands have also seen a double-digit difference in the pace of first time buyer income growth compared with average regional salaries. While the average salary in the North West has risen 4.4%, the average income among the region’s first time buyers is now 15.9% higher than it was three years ago.

In the East Midlands, average salary growth of 1.5% is put in the shade by 14.3% growth in first time buyer salaries.

Simon Crone, vice president for mortgage insurance – Europe at Genworth, commented: “Even though the first time buyer market appears, on the surface, to have recovered since the recession, our analysis suggests homeownership is in fact becoming more and more exclusive. A lack of affordable mortgages and rising house prices puts the ambition of homeownership further out of reach for many average earners. The disconnect between first time buyer incomes and average earnings is no longer limited to London and the South as it was 15 years ago, but can now be seen throughout the country.

It is a worrying sign that even in an era of record low mortgage rates, the gap between average and first time buyer earnings has reached a new high. It is another sign that lower earners will either need to seek support from friends or family to transition to homeownership or sit things out on the sidelines.

At the moment, access to homeownership for first time buyers is underpinned by temporary government policy fixes with no signs of these being extended or replaced. For the dream of homeownership to be a realistic ambition in the long-term, we need industry players including house builders, lenders and insurers to work together to provide a steady supply of new housing and enough high loan to value mortgages to enable people to buy with realistic deposits.”

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