It seems obvious to say that how much you earn will be significant in deciding how nice a house you can buy, but this has been made even more apparent by the fact that some of Britain’s major banks are lowering their lending allowances for first time buyers.
In recent times you could leverage your salary by up to five-and-a-half times when applying for a mortgage. Now it appears banks are aiming for a figure closer to four-and-a-half times your wage after both Barclays and Santander cut their lending levels to that very figure.
It could be said that lending rates with huge multiples are the reason we have a housing bubble in the first place - they’ve at least assisted in sustaining the housing bubble. Nevertheless, this doesn’t help first time buyers who live in an era with low average wages and huge house prices.
Low wages and high house prices also mean that those looking to get on the housing ladder will need to wait longer to save up a deposit – particularly if they aim to get anywhere near the 20% mark. Building this kind of deposit in a city like London could take somewhere approaching 30 years, which shows how skewed our current economic climate has become.
Despite a growth in mortgage approvals, there has been a definite slowdown in the market. This could be a lot do with the fact that the housing market is in checkmate; the prices for first time buyers are rising rapidly but the prices for second time movers are growing at a slower rate. With no signs of sufficient building initiatives, this might only get worse.
Help to Buy has helped 41,533 first time buyers, despite a lot of criticism in the press, and innovative schemes like Shared Ownership, where you can own from 25% to 75% of the value of the house and pay rent on the remainder are also gaining traction.
The mortgage caps will possibly slow down the housing market but they shouldn’t make any serious impact on house prices. This isn’t good news for first time buyers, but it isn’t the end of the world.
Moving towards more sustainable lending can only be a good thing – particularly for the government who’ll always strive to sustain house prices at any cost. If you’re one of the many young Brits caught in generation rent, you should use this time to consider saving for a bigger deposit.
