David Bexon, Managing Director
SmartNewHomes.com
Not a day seems to go by without some mention of the cash-strapped first-time buyer and their desperate struggle to get onto the property ladder. However, with rising house prices and interest rates on the up, their plight only seems set to worsen.
This buying group, who now make up less than 25 per cent of the market, continue to face increasing hurdles. With demand for homes predicted to rise over the next 20 years, resulting in further house price increases, it appears to be getting progressively more difficult for them to purchase their own home.
Perhaps not surprisingly, our recent survey found 85 per cent of first-time buyers blamed rising house prices for pushing their dream of owning a home out of reach, with almost 40 per cent not expecting to step onto the ladder until they were in their 30s. Financial woes were blamed almost entirely for their struggle, and I grow increasingly concerned for this group of want-to-be home owners.
Financial hurdles
First-time buyers currently expect to spend an average of £153,029 on their first home, a value more than seven times the average earnings of £21,266 for age 22 to 29-year olds.
To achieve the best mortgage deal, first-time buyers will need a deposit of around £15,000. This is a major financial hurdle to overcome, especially with the majority feeling the pressure of other financial commitments, including rent and debts from credit cards and student loans.
As a result, one-fifth of first-time buyers are now relying on help from parents to pull together a deposit, while one-in-ten are forced to use a bank loan or credit card and a further fifth resort to obtaining a 100 per cent mortgage.
However, buyers opting for a 100 per cent mortgage are taking on a huge commitment – and this level of debt can be very dangerous.
Other options include:
- Getting help from parents, often with fees and a deposit.
- Buying with friends or family to share the burden.
- Shared equity schemes, often offered by developers on new homes.
- Purchasing a property through a Housing Association scheme.
Eligibility
If the market continues as it has been, I would expect the uptake of schemes such as those on offer from Housing Associations to increase over the next few years, as first-time buyers spend more time investigating all of the options available to them.
Many buyers often assume that they would not be eligible for such schemes, which predominately have been marketed towards key workers. The general essence of the schemes is that they allow you to buy a share of a property, and pay rent on the rest – making it more affordable. We have now created a dedicated section on our website to allow visitors to search for Housing Association properties and obtain advice and further information of which they may have not been previously aware.
Homes are sold as leasehold properties on shared ownership terms. The minimum share you can usually purchase is 25 per cent, and 75 per cent is the usual maximum, with the Housing Association owning the rest. Buyers do still need to be able to raise a mortgage for the share they want to purchase, but they then pay rent on the share they don’t own, and rents are calculated to be affordable.
The buyer can then buy additional shares until they own 100 per cent. If they want to sell the property they can sell the share they own to another household nominated by their landlord or they can purchase 100 per cent of the property and sell it in the normal fashion.
This method provides an effective means for first-time buyers to step on to the property ladder. Once they have begun repayments and have effectively built up a deposit in the property, they are then in a much better position to negotiate a better deal if they opt to remortgage.
Government responsibility
An obvious solution would seem to be to increase the supply of affordable properties – the responsibility for this lies primarily with the government. It is the government that has the ability to allow housebuilders to produce more affordable housing and action must now be taken to address the lack of these properties – without significant and fundamental change at this level, first-time buyers could go from a rare breed to a virtually extinct one.
I would call on the government to address the shortage of properties available for offer through Housing Associations, and to focus on building awareness of what could prove a life line for first-time buyers.
