The first-time buyer (FTB) arena is one in which a lot of change has taken place over the past 10 or so years. With lenders enhancing their product ranges, launching 100 per cent and graduate mortgages targeted at FTBs, and a move to affordability based lending, the level of borrowing available to individuals far exceeds past markets. However a worrying sign is the continued slump in the number of FTBs entering the market. Rising house prices, coupled with stagnating incomes and the rising ‘flexible lifestyle’ have all meant that people aspiring to own a property are finding it harder to obtain their dream. Focusing on this, the recent Conservative Party ‘Discussion on policies to help first-time buyers’ highlighted the problems facing FTBs, as well as commenting on suggestions for helping FTBS.
Extending homeownership
Opening the event Michael Gove, Shadow Minister for Housing, said the FTB problem was a very real one, and was an issue that the Conservative party was committed to improving. “Extending homeownership is at the heart of Conservative policy thinking,” he said.
Speaking on the current plight of the FTB, and the immediate future of the market for aspiring borrowers, David Cameron, leader of the Conservative party, said: “There is a real danger that there is a new division of the have’s and the have-not’s. Closing this gap is essential.”
Cameron also cast doubts on the claims that people were keen to rent, rather than purchase a property. “Some say people should be more relaxed and not worried about not owning a property. I think this is wrong. Ownership is an important aspiration; it gives assets and security to the purchaser and is good for neighbourhoods and communities.”
However Cameron admitted the current climate made it increasingly hard for aspiring FTBs to step onto the property ladder. “The average deposit required is now £24,000. First-time buyers cannot currently buy property in 87 per cent of towns in the UK because of property prices. The supply and demand demographic is changing, people are living longer and there is a growing divorce rate.”
With these statistics in mind, Andrew Barnett, of the Joseph Rowntree Foundation, agreed there was an urgent need to review the current market conditions for FTBs. “We need to address the market’s future – if we don’t, we could leave out a generation of people who want to buy, but have no means to do so.”
However Barnett urged lenders to keep the issue of sustainability central to their philosophy when looking at the future growth of the FTB market. “If the industry as a whole wants to increase the percentage of people in homeownership then it needs to develop strategies. This includes possible partnerships between the public, private and voluntary sectors, building more houses and lenders being more imaginative with product designs. But all of this has to be done at a sustainable level.”
Stephen Leonard, director of mortgages at Alliance & Leicester, agreed with the need to widen the opportunities for FTBs. He said: “First-time buyers are the lifeblood of the mortgage market and debate on how to ease the troubles they face is much needed.
“As property prices continue to go up and with the increase of existing homeowners buying second homes, more and more young people who want to get on the housing ladder for the first time are finding it extremely difficult to find affordable property. Increasingly, they are finding other means to help them face these difficulties.”
Research
Murdo McHardy, head of product development and marketing at Scottish Widows Bank, said its research highlighted the current problems facing aspiring property owners. It revealed 64 per cent of aspiring FTBs were put off by house prices, with 50 per cent also perceiving student debts as a barrier to stepping onto the property ladder. 39 per cent reported saving for a deposit as a major problem. “There is a theme of house price inflation versus salary inflation, but an increase in personal wealth has also prompted people to invest in buy-to-let properties. People who do want to buy are priced out of the market,” he said.
However, McHardy admitted the market had adapted to the needs of FTBs, with a rise in the popularity of 100 per cent mortgage products, a factor Ray Boulger, senior technical manager at John Charcol, said could help FTBs. “People are understating the benefits of 100 per cent lending. First-time buyers shouldn’t be afraid of 100 per cent products.”
Market development
At the event, Cameron called for a radical overhaul of the current UK planning system, and set out the Conservative proposal to aid the FTB market. “Right-to-buy led to a massive change, helping 2.5 million people who wouldn’t have been able to purchase a property. But what of the people left behind? Why not turn rent into mortgage payments? Over time it will allow people to own their flat or house, opening up a whole new generation of buyers. Although it will reduce the housing stock, it will have its benefits as millions of people will be able to own a property, extending the market.”
In an effort to further improve the choices open to aspiring FTBs, Rachel Court, general manager human resources at the Yorkshire Building Society, reported it was close to the launch of its Open Market Homebuy product. Focused at key workers, Court confirmed the scheme would relax property restrictions, helping up to 40,000 households onto the ladder by 2010.
As part of the plan, the lender would provide a 12.5 per cent equity share, at 0 per cent for five years, rising to 3 per cent, fixed for the remainder of the mortgage. The government would also provide a 12.5 per cent equity loan, interest free. The remaining 75 per cent would be retained as a conventional loan, priced at Bank of England (BoE) Base Rate, plus 1 per cent for five years, reverting to BoE Base Rate plus 1.25 per cent for the rest of the mortgage.
Court confirmed Nationwide, HBOS, Advantage and Yorkshire Building Society would all add the scheme to their product portfolios.
Commenting on the product Court said: “The product pricing reflects the greater element of risk. There were a lot of issues in the development of the product, including understanding pricing, fitting in with FSA regulation and the issues of distribution, among others.”
She added: “There are a lot of opportunities for lenders to develop their own, similar products.” However, Barnett cast doubts on the design of the product. He said: “The Homebuy scheme seems like a misdirected subsidy. There are better options available.”
With a rise in FTB-specific mortgages, ranging from Homebuy schemes to graduate mortgages, McHardy said the option of shared equity was under-utilised. “Shared equity received a highly positive response during our surveys when discussed, but awareness of the option was very low.”
Regulatory issues
As a result of increased product innovation, and calls for further changes to aid aspiring buyers, Boulger called on the FSA to provide a less rigid approach, specifically to Key Facts Illustration (KFI) documents. “Morgan Stanley launched a first-time buyer product, but to fit in with the FSA KFI rulings, the lender had to produce a separate risk document,” Boulger explained.
Nicholas Boles, director of the Policy Exchange, instead suggested local governments and councils needed to be incentivised to allow for property developments within their area. He said the supply versus demand argument could be settled with each community widening by a fraction, to increase housing stock. “If every community adds another 1 or 2 per cent of new houses, the housing market will stabilise. Despite what people suggest, the UK is not overly built up.”
Concerns
The FTB discussion also prompted concerns over the recent announcement that the average age of a FTB is between 29-34. With property prices likely to rise further over the next five years, with indicators suggesting rises of 50 per cent could not be ruled out, the issue of affordability will be even greater than it is in today’s climate.
The rising number of buy-to-let investors, and those interested in the buy-to-let market was highlighted as another cause for concern. It was suggested that, typically, property investors invest their money in small one and two-bedroom properties, be they flats or houses, that were traditionally viewed as ‘FTB-ready’ properties. With many of these properties now being taken out of FTBs reach by property investors, they are reduced to waiting longer to gain a more suitable deposit, by which time property prices could rise again.
Sean King, director of movewithus, urged the government to act now to help aspiring buyers. He said: “It’s about time the government worked towards helping FTBs get on the property ladder. The average twenty-something will struggle to get a minimum deposit together, let alone pay the hefty Stamp Duty and other associated costs of buying a new home.”
Conclusion
It is clear the housing market has much work to do to tempt back FTBs. With an ever rising interest in buy-to-let and rising house prices, FTBs feel they have little chance of getting on the property ladder. However, improving consumer knowledge could help FTBs realise their dream, and as Ray Boulger commented: “First-time buyers have more options available to them than they think.”
