As the number of buy-to-let mortgages have exploded, the first time buyer has gradually faded away. It is not hard to see why. According to data from the Council of Mortgage Lenders, a first time buyer who wants to "get on that ladder" today will need to fork out around 21 percent of their income on interest payments.
First time buyer income multiples are also way up. In fact, this ratio is now approaching 3.5; up from 2.5 back in 2002.
However, here is a very curious thing. The Council of Mortgage lenders also produce data on the average income of first time buyers. If this data is compared to average economy-wide earnings (including bonuses), we see that that the first time buyers have enjoyed faster income growth than the rest of us. The divergence is large; as of November 2007, the differential was 14 percent.
There are two possible explanations for this deviation. Either, there has been a shift in the occupational profile of people who become first time buyers. Instead of bus drivers and nurses, first time buyers are now accountants and lawyers. Alternatively, first time buyers have been inflating their incomes.
This little issue about the veracity of income declarations hasn't limited the generousity of banks. Since 2002, the average size of a first time buyer mortgage has almost doubled; from around £60,000 to almost £120,000.
Taking the four charts together, this looks like a nasty brew for the banks. First time buyers are beaten down by interest payments, their mortgages are huge multiples of their income, and they probably exaggerated their earnings anyway. Despite the growing evidence of first time buyers struggling, banks have simply increased the size of mortgages.
That is a recipe for a huge increase in mortgage defaults.