House prices `35% above level of affordability`

22 August 2008

People may be getting into mortgage arrears due to high house prices, according to comments made by the chief executive of Firstrung.

Paul Holmes of the company, which specialises in helping first-time buyers, said: "At the moment house prices are 35 per cent above the trend line for affordability."

He went on to say that the house prices of last year`s peak need to be considered and over a quarter needs to be taken off to bring them down to more affordable levels.

Mr Holmes added that "the market is due" for a price correction but new-build flats would be hit hardest as a 35 per cent drop would "only take us back to 2003-4 when first-time buyers were still struggling".

At the moment, buying a typical home requires a total of £27,738 up front, a sum that would see a first-time buyer couple having to raise over 100 per cent of their joint take-home pay if they were earning lower quartile earnings (totalling £27,516 after taxes), a survey from the Royal Institution of Chartered Surveyors found.

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