With first-time buyer levels dropping to the dangerously low level of 30 per cent compared to a peak of 55 per cent in 1993 and 1994 (Source: Hometrack data), the government and the industry are pulling out all the stops to encourage the life-blood of the market back onto the property ladder.
One such initiative is Gordon Brown’s latest pledge to help 100,000 struggling first-time buyers over the next five years to buy a home through a government shared equity scheme.
We commend Gordon Brown’s first-time buyer initiative but with a backlog of over half a million aspiring potential first-time buyers earning too little to purchase a home, the Chancellor’s proposed plan will only scrape the surface.
Lip service?
The government – Chancellor Brown in particular – has recently tackled the problem of the declining number of first-time buyers. Prior to the General Election Gordon Brown, of course, increased stamp duty levels to £120,000.
However many critics believe he was simply paying lip service as it is virtually impossible to purchase a property at £120,000 in many parts of UK. And more recently Brown has proposed for the government and industry to shoulder the burden and cover the cost of up to 50 per cent of the value of a property to help deserving first-time buyers.
However, Hometrack can reveal that with property prices rising by around 50 per cent over the past five years, purchasing up to 50 to 75 per cent of the value of a house is still too onerous for the vast majority of the working population in the UK.
Analysing the percentage of the population able to afford all or part of a first-time buyer flat, Hometrack has identified that in only a fifth of the cities in the UK can 50 per cent of the population afford to buy 75 per cent of the value of a home without a sufficient deposit.
Immediate action
House prices have stagnated but there are absolutely no signs that they are going to significantly fall in the near future and there is a need to address the dwindling number of first-time buyers immediately.
Among initiatives that do address the affordability issue is Assettrust Housing, a private property investor in affordable housing in both commercial and residential property sectors which has already raised an impressive £500 million and proposes to spend £200 million per year over the next five years on all tenures of affordable housing.
Operating in conjunction with up to 12 housing associations, Assettrust Housing, which was set-up in 2004 to provide social housing including socially rented and shared-ownership properties to the homeless and low-income earning population, provides an alternative option to help struggling potential buyers onto the property ladder. The company provides housing without the use of any government grant.
Assettrust Housing scheme will help buyers that would have otherwise been overlooked by the government’s proposed scheme. In contrast to the Chancellor’s initiative, first-time buyers will only have to purchase 20 per cent of a property through Assettrust’s proposed plan.
Long-term health
Although the industry is currently buoyant thanks to the surge in remortgaging and the buy-to-let industry, the long-term health of the market is reliant on the flow of first-time buyers. With first-timers commonly climbing up a rung of the property ladder every few years it is crucial they are encouraged into the market.
House prices currently remain flat and we predict only marginal rises in this year; therefore in the current market first-time buyers that take ad-vantage of a shared ownership scheme will not ‘get rich quick’.
However they will have the satisfaction of knowing they are no longer paying ‘dead money’ to a landlord and that they can sell the property at any time and consequently benefit from any rise in its value.
It has always been difficult for young people to raise enough money for a deposit but it has been galling for first-time buyers in the recent years of the property boom to keep seeing that magic figure rise out of reach.
In fact, recent research from National Savings and Investments revealed it now takes an average first-time buyer four years and nine months to save a 5 per cent deposit. This is an increase of nine months over a year ago.
However, despite house prices rising exorbitantly over the past few years, interest rates are historically very low and there are a number of great deals available for first-time buyers as the affordability issue is addressed.
With property prices levelling off and the government and property industry offering a plethora of initiatives to help first-timers, these buyers now have a very real chance of getting a foot on the property ladder.
Mark Witherspoon is chief executive of Hometrack
