First-time home buyers stretched

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First-time home buyers now take out mortgages worth, on average, 3.31 times their income, says the Council for Mortgage Lenders (CML).

This record level of borrowing highlights the increasing financial difficulty of buying a first home.

The average first-time buyer now has an income of £35,000 and borrows £115,499.

Rapidly rising house prices meant that in December 2006 only 41% of first-time buyers were able to buy below the stamp duty threshold of £125,000.

"The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers - and the ever-rising proportion of them who are caught by stamp duty," said the CML's director general Michael Coogan.

Property prices have risen twice as fast as incomes in the past decade, forcing borrowers to take out loans that are increasingly large as a proportion of their incomes.

In 2006, the typical first-timer borrowed a mortgage that was only 2.36 times his or her annual income.

Ladder intact

Despite this ratcheting-up of the cost of buying a home, first-timers have not been driven out of the property market.

They accounted for 36% of all new home loans in 2006, up slightly from 35% in 2005, though still well down on the 50% level seen during the 1990s.

One reason the housing "ladder" has not collapsed under the weight of record house prices is that for many years, interest rates have been at relatively low levels, making it easier for people to borrow large amounts of money.

For the same reason, lenders have increasingly relaxed their lending criteria, being prepared to lend larger sums of money than was once the case - in some instances, up to five times a borrower's income.

Also, the CML statistics do not tell the whole story.

A large minority of those classified as first-time buyers are, in fact, people who have bought before, but have been out of the property-owning market while living in rented accommodation.

In some cases, they will have been able to put down a significant sum of money as a deposit when deciding to buy a property again.