Does it pay to be a first-time buyer?

In a recent report from the London Housing Federation, it was estimated that first-time buyer needs to earn more than £100,000 in order to afford an averagely priced house in 25% of all London boroughs.

The average price for a house in the capital has hit £318,000, which is double the national average that first-time buyers can expect to pay anywhere else in the country. Desperate times for first-time buyers have created what is being described as a ‘social crisis’, where increasing numbers of people are struggling to get their foothold on the property ladder.

House prices in London have been steedily increasing since 1997, fuelled by huge City bonuses and foreign investment. In fact the average house price has now increased by 161% of what it was in 1997, whereas income has only increased by 40%. With this in mind, first-time buyers are now saying that they need to earn an income of over £86,000 to buy an ‘averagely’ priced house in the capital, based on traditional lending multiples. The actual average earnings in London are more like £24K, therefore the first-time buyer needs to look at borrowing 13 times their salary in order to buy their own home, which mortgage lenders would never agree to.

The cheapest properties are in Dagenham and Barking, but even then first-time buyers are looking at paying £175,159 to get a foothold on the property ladder. This would mean actually earning an average of £47K or borrowing over 8 times the first-time buyers average earnings, when most mortgage lenders will only advance 4 times.