RBS data showed conditions for first-time buyers (FTBs) have deteriorated by 1% quarter-on-quarter and by 0.1% year-on-year in Q1 2012 due to the rising cost of living in the UK.
The RBS Ability to Buy index counters the assumption affordability has soared for first-timers since the credit crunch and reports first-time buyer affordability is unlikely to return to 2003 levels until 2014.
The price of an average first-time buyer house fell by 1.2% year-on-year in Q1 2012 and is expected to fall by about 2.5% in 2012.
This means that both mortgage payments and the size of deposit that FTBs have to raise will get smaller. However, mortgage payments still take up 55% of first-time buyer’s discretionary income.
Fionnuala Earley, UK consumer economist said: “Sticky inflation is bad news for FTBs, but there is light at the end of the tunnel. We expect UK house prices to fall by about 2.5% in 2012, so even if the price of essentials continue to rise and earnings grow modestly in the same period, the ability to buy will improve.”
Perhaps unsurprisingly, first-time buyers in London are having to save twice as long as the rest of the UK as higher rents mean food and housing is taking 75% of earnings, against 50% in the rest of the country.
Over the year, the ability to buy deteriorated most in London, where it was 18% worse than in Q1 2011. It also deteriorated in the North East (-14%), Wales (-10%) and the South East (-5%).
Over the year, the ability to buy improved most in Northern Ireland, where it was 15% better and the East of England saw an 11% improvement in the same period.
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