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In Europe, Sticker Shock for First-Time Buyers

When It Comes to Affording a Home, Creativity Helps in High-Priced Markets

By Thomas Wagner
Associated Press
Saturday, March 26, 2005; Page F10

LONDON -- Jack Bowley was tired of paying rent each month with nothing to show for it and wanted to buy a home in London, where he works. But given how swiftly prices were rising, and how much of a down payment he would need for a mortgage, he couldn't reach even the first rung of the property ladder.

So he teamed up with the two friends he was renting an apartment with. They took out a joint mortgage in late 2003 to buy a three-bedroom flat in Hackney, a developing area of East London, for about $447,000.

"I couldn't even have afforded a studio apartment in central London by myself," said Bowley, 26, a media analyst. "But working together as close friends, we were able to do much better. If we hadn't known each other so well, such a joint mortgage could be hazardous."

Overheated housing markets in some European countries and some areas of the United States are leaving many first-time buyers in a similar predicament.

Despite generally low interest rates, young professionals often have to borrow money from relatives for down payments, risk interest-only mortgages and 100 percent financing, or think creatively as Bowley did -- team up with friends for joint mortgages, which often are adjustable-rate loans.

Some young couples are delaying parenthood so both partners can keep their jobs to afford the mortgage payments, and in France, Spain and Britain the average age of first-time buyers is rising. It rose to 34 from 31 in Britain from 1991 to 2004.

In Dublin, where the average price of a residential property is now about $451,000, retired bank manager Dennis Raftery said he and his wife, both in their late fifties, are still sharing their home with their two youngest children, who are in the twenties.

"They'll never be able to afford their own property in Dublin," Raftery said. "They'll just have to inherit our home once we're in the ground."

In Denmark, the average price of one-family homes has more than doubled over the past 10 years, compared with a 45 percent rise in wages.

"Many first-time buyers enter the market sooner than before, as they are afraid they won't be able to afford a house two years down the road in this rising market," said Jakob Brochner Madsen, an economics professor at the University of Copenhagen. "It's kind of a flock mentality with everybody stampeding into the market, and that's keeping house prices going up and up."

In the United States, a study by consulting firm Economy.com found that house prices are so high in nearly 30 metropolitan areas that people with median incomes can't afford a median-priced home. Most of those cities are on the East or West Coast. In many other parts of America, affordability isn't much of a problem.

In Britain, though, the government's National Savings and Investments department said that while wages have increased nationwide by an average of 79 percent in the last 10 years, house prices have gone up by 180 percent. Halifax, Britain's largest mortgage lender, said last month that first-time buyers were finding nine out of 10 towns in the country unaffordable.

One result is that public sector workers, such as nurses and police officers, often can't afford to live anywhere near where they work.

In Britain, a densely populated country with an owner-occupancy rate of 70 percent, the annual number of loans to first-time buyers has fallen nearly 50 percent in the last few years, Halifax said.

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