According to RBS’ Ability to Buy index, conditions for first-time buyers improved by just 1% in 2011.
The lender said this was down to a 1.4% fall in first-time buyer house prices and a 1.1% increase in gross earnings during the year.
But, it was prevented from improving further by the big rise in living costs. In 2011, consumer prices increased by 4% compared with 2010, while food prices rose by 5%, utility prices by 6% and transport costs by 8%.
Gross earnings for the average first-time buyer household averaged £24,905 in 2011, but after tax, National Insurance and spending on essentials, discretionary income was £13,205 – 69% of gross earnings, found RBS.
The price of an average first-time buyer house fell by 1.4% in 2011 and is expected to continue to fall in 2012, said RBS.
Mortgage payments faced by an average first-time buyer household in 2011 fell by £20 per month. As a result, mortgage payments only took up 51% of discretionary income in 2011 compared with 53% in 2010.
Graham Felstead, head of intermediary channel, NatWest Intermediary Solutions said: “On one side of the coin, falling house prices and wage increases have improved the situation for first-time buyers, on the other, inflationary pressures on discretionary income have led to a deterioration of conditions.
“However, the bottom line is that the ability to buy did improve in 2011, albeit by a small amount. With inflation expected to continue its downward trend, the future could start to look better for first-time buyers.”
In separate research, Unbiased.co.uk found that first-time buyers looking to secure a 75% LTV mortgage on a property would be facing a deposit gap of around £15,500.
The data showed that the average first-time buyer is saving toward a deposit of £22,706.
Karen Barrett, chief executive of unbiased.co.uk, said: “While saving towards that initial deposit is no easy feat in the current economic climate, the figures show that if first-time buyers’ aim towards a larger deposit they will be eligible for better deals.”
