The housing crisis is once again hitting the front pages and is now making its way to the forefront of Gordon Brown’s political agenda. Has it become completely impossible for first-time buyers (FTB) to enter the property market? If so, what is being done to solve this problem?
Recent research has highlighted just how serious the problem has become for FTBs around the country. In 2006, it took FTBs, on average, four years and 11 months to save enough money to get their first foot on the property ladder.
This has increased by 11 months since 2005, where the average was only four years. The hardest hit, however, are unsurprisingly those attempting to buy their first home in London, who have to save for just under seven and a half years. With many young people living in rented accommodation while trying to save for all these years, the pressure on their purse strings must be at breaking point.
Affording a home
So, what can be done in order to help these FTBs? The government is currently promoting more house building, which will hopefully reduce the severe housing shortage and help to meet the high demand. Brown has set targets of three million new homes by 2020, which raises the annual house building target from 200,000 to 240,000 per year by 2016.
Although this initiative should help to ease the housing shortage and therefore offer an influx of affordable housing to FTBs, we also have to look into how these buyers can afford their new homes.
Panic has hit many borrowers who are realising they are coming to the end of their short-term fixed rate mortgages. Following the soaring cost of borrowing, as a result of the five interest rate rises in the last year, many are now facing large increases in monthly repayments.
In response, the government is calling for more longer-term fixed rate mortgages, following the US and Europe, who offer 30-year fixed rates as the norm. The advantage, of course, being that the fluctuations in interest rates have less effect on the housing market and it is therefore a lot less volatile.
Hopefully more access to competitive longer-term fixes would offer FTBs more security, and therefore put them in a better position to make the first step onto the property ladder.
Added extras
But mortgages and availability of housing aren’t the only reasons FTBs have to save for so long. Added extras, such as legal fees and Stamp Duty can be astronomical, and eat into much of a FTB’s savings – taking away from their deposit.
With the average UK home standing at £151,565 in 2006, the average FTB had a Stamp Duty bill of roughly £1,516, based on the average first time buyer home. For Londoners the average FTB home stood at £250,198 in 1996, making them eligible for Stamp Duty of £7,525.
Obviously more could be done to alleviate this problem. Stamp Duty wasn’t brought in as a tax to try and hit FTBs and therefore should be amended to ensure they are not hit so badly. A tiered system would be a much fairer way to bring in this tax and stop FTBs from being knocked sideways. In this system, consumers would only pay the 1 per cent charge on the amount of their property above £125,000, and 3 per cent on the amount of their property above £250,000, for example.
By doing this, properties would be able to sell for their real value, rather than hovering on the lines between Stamp Duty thresholds. More importantly, FTBs would be able to put their savings towards a deposit, instead of a tax. So, let’s hope Stamp Duty is also a point of interest on Brown’s agenda, to try and stop it crippling FTBs.
A moving milestone
It is a well known fact that the first step on the property ladder is moving further away from FTBs – but having to save for an average of five years highlights just how far the milestone has moved.
It is up to the government and lenders to ensure enough is being done to stop this group of potential home buyers being deterred from the market altogether. Ensuring there are enough properties, competitive mortgage products and fair taxes is just the starting point – otherwise owning a property could become an unobtainable goal to many would-be FTBs.
Download our news ticker
Find out more about this weeks industry news
