Rising debt leaves first-time house buy­ers in south Eng­land stretched fur­ther than north­ern bor­row­ers

Financial Mirror (Cyprus) - - FRONT PAGE -

Higher house prices and stag­nant in­comes are leav­ing first-time house buy­ers in south Eng­land in­creas­ingly sub­merged in debt com­pared to their north­ern coun­ter­parts, said Moody’s In­vestors Ser­vice.

“Our anal­y­sis shows that most first time buy­ers’ mort­gage debt is over three and a half times their in­come in south Eng­land, whereas this ra­tio is up to 30% lower in the north. Mort­gage ac­ces­si­bil­ity is re­stricted for first time buy­ers, who need up to 15% higher de­posits in some cases, com­pared with non­first-time buy­ers,” said Steven Becker, an an­a­lyst at Moody’s.

“Higher lever­age leads to more pro­nounced credit risk. Along­side higher loan-to-value ra­tios, this weighs on loan per­for­mance and re­duces the like­li­hood of re­cov­er­ies if the un­der­ly­ing prop­erty is re­pos­sessed,” added Greg Davies, an As­sis­tant Vice Pres­i­dent at Moody’s.

Bor­row­ers who bought a home in the south of Eng­land over the past two years are more lever­aged than their North­ern coun­ter­parts, with up to 30% higher loan-toin­come (LTI) ra­tios.

In the south, loan-to-value ra­tios are up to 23% higher for first-time buy­ers com­pared to ex­pe­ri­enced buy­ers. That said, while mort­gage spend­ing is high­est in the south, so are in­comes.

In Scot­land in Q2 2007, sin­gle-in­come bor­row­ers would have needed about 40% eq­uity to buy a prop­erty, with an av­er­age house price of about GBP145,600 for the re­gion, and a me­dian in­come of about GBP23,100, ac­cord­ing to ONS. How­ever, dou­ble-in­come bor­row­ers would have only needed about 1% eq­uity. House prices have since de­creased to about GBP133,700 in the re­gion, with a rise in me­dian in­come of about 20% over the same pe­riod, ac­cord­ing to ONS. There­fore, sin­gle-in­come bor­row­ers would to­day only need about 7% eq­uity (sub­ject to banks’ un­der­writ­ing po­lices in­clud­ing max­i­mum LTV lev­els).

The data for dou­ble-in­come bor­row­ers in north east Eng­land shows an im­plied eq­uity sur­plus at about 80% as of end 2015. For dou­ble-in­come bor­row­ers based on af­ford­abil­ity only - not con­sid­er­ing any LTV lim­its - the pos­i­tive val­ues mean that their com­bined in­come is suf­fi­cient to (1) pur­chase a prop­erty worth the av­er­age house price; and (2) al­low them to ac­cess the funds for prop­er­ties that are 80% higher than the av­er­age house price in the re­gion.

First-time buy­ers now bor­row over longer pe­ri­ods of time to re­duce the av­er­age mort­gage spend­ing. For ex­am­ple, their mort­gage terms are up to five years longer com­pared with ex­pe­ri­enced buy­ers. Over­all, the weighted-av­er­age loan term in the UK is 28 years for first-time buy­ers, com­pared with 23 years for ex­pe­ri­enced buy­ers.

“Lon­don­ers have the tough­est time get­ting on to the prop­erty lad­der, as only high earn­ers have ac­cess to the mort­gage mar­ket. The Lon­don me­dian to­tal in­come ob­served in the pools used to ob­tain a mort­gage is 2.4x than the Lon­don me­dian an­nual salary,” added Davies

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