First-time buyers 'facing squeeze'

Jan 31 2012

First-time buyers are facing a squeeze despite falling mortgage costs because of rising living expenses, according to a new report.

However, the situation for first-time buyers (FTBs) in Scotland is better than in the rest of the UK, the RBS ability to buy index found.

North of the border the ability to buy index has dropped from 109.1 in the third quarter of 2009 to 99 in the third quarter of 2011, a positive move.

This compared to the UK as a whole where it became harder to buy, going from 97.3 in the third quarter of 2009 to 98.6 in the same period in 2011.

However, the study found that the rising cost of essentials during 2011 outweighed the effect of falling house prices and rising incomes on the ability to buy.

In the third quarter of 2011 a first-time buyer repayment mortgage in Scotland took up 45% of discretionary income (income after tax, National Insurance and spending on essential goods and services).

At the peak of the market in 2007 this proportion was 84% in the UK as a whole.

Fionnuala Earley, RBS Group UK consumer economist, said: "Our new index provides the most accurate picture available today of the squeeze on first-time buyers, by including the effects of tax, National Insurance, earnings and rising living costs, in addition to house prices and interest rates.

"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."