Housing affordability at worst level since the credit crunch

It now takes two extra years to save for a deposit than it did 12 months ago

Young people now have to save for an additional two years to get on the property ladder, as analysis showed affordability is at its worst level since the financial crisis.

House prices rose by almost 8pc last year, according to data from the Land Registry, but earnings remained flat as many workers were put on furlough.

As a result, the house price to earnings ratio, a measure of affordability, jumped from 9.5 in 2019 to 10 in 2020, according to calculations by property agent Benham and Reeves. That is the highest the ratio has been since 2008.

At the same time it has become more difficult for first-time buyers to get a mortgage, as many banks have stopped offering loans to people with small deposits. Others are willing to lend but only at higher interest rates.

As a result of the stricter rules on borrowing, it would now take two years and four months longer for the average first-time buyer to save up for their deposit compared with this time last year, the research found.

It assumed that the person put 20pc of their earnings each month towards the house purchase and that they were saving up for a 15pc deposit now, compared with 10pc last year.

The calculations were based on the average first-time buyer house price – which rose from £195,287 to £209,163 – and the average salary for a 22 to 39-year-old, which is £23,640 after tax.

The average young person would now have to save for almost seven years to buy their first home. The increase in time taken to raise a deposit was highest in London, where it now takes almost four years longer than last year.

Capital Economics, a consultancy, has forecast property prices will fall by 5pc this year, with wage growth of 2.2pc. This could make getting on the ladder more affordable.

Mortgages are coming back, too. There are now 248 10pc deposit mortgage deals, up from 51 in October, according to Moneyfacts, a data provider. However, this is still lower than the 751 available this time last year.

Andrew Wishart of Capital Economics said: “Banks are being cautious due to rising unemployment, so we think mortgage rates for buyers with small deposits will remain elevated this year.” Marianna Hunt