Record numbers of first-time buyers received substantial help last year as family members used their own assets to help to get them on to the property ladder.
Research by the Council of Mortgage Lenders shows almost half of first-time buyers aged below 30 were given or lent money by relatives to help to buy a property against almost 10 per cent in 1995. One effect is to have pushed the average deposit of those first-time buyers who received family help to £34,200 – or almost 1½ times their average annual income – compared with less than £13,000 in 1995.
The research indicates more families are tapping into their own housing wealth to help to fund the property purchases of their offspring. “We think that most of this money is coming from parents or grandparents who are often remortgaging their property or, in the case of grandparents, sometimes raising funds through equity re-lease,” said Jackie Bennett, head of policy at the CML.
Rising property prices have forced many first-time buyers either to borrow more or raise bigger deposits.
Halifax calculates that the average first-time buyer deposit is £23,967 – equivalent to 76 per cent of their average earnings – against £9,984, or 42 per cent of earnings, five years ago.
Halifax believes it now takes first-time buyers al-most five years to save for a deposit to buy a property, almost twice the time it took five years ago.
Tim Crawford, group economist at Halifax, said: “We estimate there were just 320,000 first-time buyers in 2005, the lowest level since 1980.
“In 2002, there were 530,000, so we have seen a 40 per cent drop in three years. One of the reasons these numbers are lower is because it’s taking longer for people to save for a deposit.”
The bank calculated that a typical first-time buyer was unable to afford a semi-detached property in 87 per cent of towns in 2005, compared to 41 per cent in 2002.
Lenders have responded to rising prices by agreeing to extend greater multiples of buyers’ incomes, usually four or in some cases five times income.
Melanie Bien, associate director of Savills Private Finance, the mortgage broker, said: “Traditionally banks and building societies lent up to 3.5 times income. Now most lenders will offer multiples of four times.
“More lenders are also moving to affordability criteria enabling them to lend up to five times income in some cases.”
According to the CML, in the second quarter of 2005 – the latest figures available – first-time buyers borrowed 3.19 times their income, the highest loan-to-income multiples on record, although lower interest rates have help cushion the burden of bigger loans.
Mortgage interest repayments for first-time buyers now average 17.1 per cent of gross income, compared with 12 per cent in 2003.
