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December 24, 2007    

First-time buyer purchases plummet as 96% cannot afford to buy

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by Gill Montia

A report from Halifax show just how bleak the prospects are for potential first-time buyers.

According to the UK’s largest mortgage lender, 96% of people looking for their first home cannot afford to buy.

As a result, the number of first purchases has dropped from 532,000 in 2002 to 300,000 in 2007 and is currently at its lowest level since 1980.

The situation is not helped by the fact that the number of first-time buyers paying 1% stamp duty has risen from 50% in 2005 to 66% in 2007.

The recent cut in the base rate is not expected to have an immediate impact on affordability because it will take some time to be reflected in High Street lending.

It is possible that relief will come as the rise in house prices falls below the rate of inflation, allowing salaries to catch up.

However, this process would be slow; latest figures from Halifax show the average income for a first-time buyer is £31,294, while the average house price for a first-time buyer is £175,093, or 5.59 times the average salary.

Martin Ellis, chief economist at Halifax, comments: “Rising property values have priced many potential first-time buyers out of the market. When they do enter the market, they are now more likely to be in their thirties rather than twenties and buy a flat rather than a terrace house.”

The report found that flats, along with terraces, are now the most common property for first-time buyers, with 37% purchasing a flat.

Bootle in Merseyside is the most affordable location in the UK, with an average house price of £112,689, just over three times the average income for a local first-time buyer household.

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