Income needed for home buyers increased
One of the greatest barriers that those looking to buy a home is affordability and the income. Much of the discussion centres around deposits but the household income required to finance a mortgage is just as important. This is because income levels are needed to assess the affordability of a mortgage through the loan-to-income assessment.
First-time buyers usually have lower deposits compared with existing owners who are looking to upgrade, say to a larger home. The higher the deposit however, the lower income needed to buy.
The data shows that the typical first-time buyers take a mortgage which is 3.3 times their household income. Existing homeowners on the other hand who are looing to move usually take out a mortgage that is, on average, three times their household income.
Using these average loan-to-income ratios, and the average asking price of properties on sale, makes it possible to calculate the household income needed to buy a home for first-time buyers as well as existing homeowners.
A first-time buyer looking to buy a typical first home with a price of £250,000 and with an average 20% deposit would need an annual income of £60,600 if they hope to buy. This is £2,400 more than it was a year ago.
Someone looking to upsize to an average-priced home currently on the market at £335,000 and with a larger average deposit of 35%, would need an income of £72,600 or £3,400 more than they did last year.
The average household income in the UK is currently around £33,000 according to the ONS. This means that two average earners buying together have a combined household income of £66,600, which is enough to buy a typical first-time buyer home. However, those on the same income would likely struggle to upsize to an averagely-priced home without a larger deposit.
