Considering current property prices and income data, a five per cent deposit would leave the average purchaser as much as £175,246 short on their home based on the maximum amount most lenders are willing to give.
Earlier this year, a raft of lenders tightened loan to income (LTI) multiples for borrowers on lower incomes to around four or 4.5 times income. This was also restricted for those requiring mortgages above 80 per cent LTV.
The recent wave of 95 per cent LTV mortgages has been no different and includes criteria that allows maximum income multiples of no more than 4.75.
The most generous LTI is 4.75 times income which is being offered by Skipton Building Society and is available to all buyers including first-timers.
Atom Bank will also lend up to 4.75 times income for borrowers with a single or joint income of £100,000 or more. For single or joint incomes under £100,000 the digital bank will only lend up to 4.5 times income.
Other lenders that have launched 95 per cent LTV mortgages both with and without the government’s scheme have capped LTI at multiples between four and 4.5 times their income.
Statista puts the average age of an English first-time buyer living outside of London at 32, while those in the capital buy their first homes at the age of 34.
Its data also says the average salary for men in the UK aged between 30-39 is £34,567 while for women, it’s £30,258.
Based on LTI multiples for 95 per cent LTV mortgages, the average man buying his first property on his own would be able to borrow up to £155,551 and a woman would receive up to £136,161 with an LTI of 4.5.
According to Rightmove, the average asking price of a home in the UK currently stands at an all-time high of £327,797.
This means a five per cent deposit of £16,389 combined with borrowing the maximum £136,000 would leave female buyers £175,246 short on the £311,407 needed to make up the shortfall.
Male purchasers would be down £155,856.
Looking at properties worth the average price paid by first-time buyers in March, reported as £203,564 by Rightmove, purchasers will still need to earn at least £45,000 either on their own or as joint borrowers to get a 95 per cent LTV deal.
Considering the maximum borrowing amount of £164,193 for a single purchaser, the North East would be the only affordable region with an average property price of £161,994.
Halifax offers the cheapest two-year fixed 95 per cent LTV, priced at 3.73 per cent. Putting down a five per cent deposit in the North East would mean monthly repayments of £789.55.
The cheapest five-year fix is offered by Coventry Building Society and priced at 3.99 per cent. For the same property in the North East, monthly repayments would be £803.
Chris Sykes, associate director and mortgage consultant at Private Finance, said this was not a new problem as prices had outstripped affordability for years.
He said this was also not just an issue at the upper 95 per cent LTV lending tier but added that banks being more “stringent” to higher risk loans made it more prevalent.
He added: “It is incredibly hard at any loan to value for a single first-time buyer to get a home unless you are living somewhere with much below the average property values or they have much higher than average income.
“It often is not possible for the average person to get the average property, either they have to settle for less or cannot get anything at all.”
Mark Robertson, partner at Chadney Bulgin said assessments were based on the regulator’s view of affordability.
He said although underwriters did factor in estimated and actual costs, they did not always consider potential individual circumstances.
“Some of these buyers will have rented and may well have been paying higher rents. I don’t think it’s a fair reflection.
“It should be true affordability of the individual. A single person on £34,000 might have more disposable income than a couple with a child,” he added.
End of the single buyer?
Robertson said these restrictions could lead to fewer people buying on their own and choosing to purchase with a partner, family member or even friends.
Based on the average pay figures, a joint application with mixed gender applicants with a combined income of £64,825 could borrow up to £307,918 on a 4.75 income multiple.
Two women could be able to borrow up to £287,451 while a lender could offer two men as much as £328,386. In this scenario, two male applicants could potentially afford a property at the current average price as stated by Rightmove.
However, this will depend on differing lender criteria.
For example, Buckinghamshire Building Society will either loan up to 4.5 times the first income plus 3.5 times the second income or will lend four times the joint income. TSB caps income multiples at 4.25 for applications where any borrower is self-employed.
Robertson also questioned whether people living in areas with lower property prices would be making salaries which would allow them to borrow enough to purchase.
According to Payscale, the average salary in the region with the most affordable property prices is £27,000. On an income multiple of 4.5, this would put the borrower’s maximum potential at £128,250, which falls short of the North East average property value by £33,744.
A borrower here would actually need a 21 per cent deposit of £34,018 to make up the difference, rather than a five per cent deposit of £8,099.
More options for buyers
Rachel Dixon, mortgage adviser at RH Dixon, agreed that affordability constraints even for the cheapest properties was an ongoing issue.
However, she said it was still a positive to see more options on the market at 95 per cent LTV as people would “at least have a shot at buying if they meet all other criteria”.
Adam Wells, co-founder of Lloyd Wells Mortgages, said the same as many of his clients were disappointed to find they would need to double their deposits when 95 per cent LTV mortgages disappeared last year.
He also said the low borrowing power would not necessarily be an issue for most first-time buyers.
“Although the average house price is £327,797, most first-time buyers aren’t looking to buy a three-bed property and will only be in their first home for a few years. Their buying power will improve if they are able to purchase with a partner, friend or sibling.
“It can also open up the conversation to other ways of purchasing such as the Help to Buy scheme, shared ownership and shared equity. Anything that can be done to help more people purchase their first home has to be a good thing,” Wells added.