The plight of first-time buyers is never far out of the news, and just recently we’ve had a raft of research showing that – despite the Government putting significant resources into this borrower demographic – the struggle to get on the ladder remains very real, and the fundamental issues that first-time buyers have to overcome are not going away, if anything they’re getting worse.
Let me start by saying that I agree it is very important that younger people have the opportunity to purchase their own home and that the Government should be involved in incentivising this. But, and there are a number of ‘buts’ to draw attention to here, the problems potential first-timers face will not be eradicated if you’re not tackling the most important issue. Plus, first-timers won’t be helped by crippling another part of the market. And finally, they certainly won’t be helped if you continue to increase a tax which is already putting many people off purchasing/moving in the first place.
Firstly, what have we learnt recently? Well, according to the latest Halifax First-Time Buyer Review the average house price for first-timers is now at just over £208k, that’s gone up by 21% in the last decade. Quite obviously, during that period, housing supply has in no way kept pace with demand – less supply, not just in terms of new-builds, but also in terms of available property for first-timers to purchase, means an inevitable increase in cost.
The latter point is often forgotten by Government as it fixates itself (and the market) on new-build supply. As prices have risen, so have stamp duty/moving costs, which means those who would normally move up the ladder no longer feel able/can afford to do so. Those homes that would ordinarily be first-time buyer ‘fodder’ do not make it into their hands so there is less chance of them buying and, there are also a number of other factors not working in their favour.
Income levels are rising but very slowly so, unless you have the Bank of Mum & Dad to support you, the chances of securing a deposit for a property – especially one at a level which will give you a chance of affording the monthly mortgage payment – are slim. The Halifax research suggests the average deposit for first-timers across the country is now just over £33k – in 2008 it was still high at close to £20k but that’s a steep increase. For those wanting to buy in London, the numbers are eye-watering – up to over £114k – a decade ago it was just over £38k.
It means that in order to purchase you’re probably going to need family assistance of some kind, and even then, getting up to £33k saved is going to be a stretch especially if you’re renting/paying off student loans/working in lower-paid jobs. Halifax suggests that more than a third of new buyers received financial help from parents in order to do so. This number is only likely to rise.
Now, the Government has of course put plenty of effort into helping first-timers but one might readily argue that this only helps those who can still call upon family support, or were getting to a point where they could buy anyway. Does a measure like cutting stamp duty to nil for those first-timers purchasing homes under £300k actually make a big difference? The saving, in the grand scheme of things is miniscule, and what it has probably done is increased the offers made on homes, pushing up prices, and only really benefiting existing owners. In essence, cutting stamp duty for first-timers helps those who were already going to buy.
So, what can be done? Well, there are some obvious answers in terms of increasing supply but there is also the opportunity for some big ‘gesture politics’ in the form of stamp duty cuts. This should not just focus on first-timers though because the number of transactions needs to be raised across the board, and one way to do this is by helping those who want to move but are put off by these costs. This would help second-steppers and older homeowners who might want to downsize, indeed it would give all potential movers a much-needed boost – it is about freeing up properties and making it more affordable to move. When you’re looking at thousands upon thousands of pounds of ‘dead money’ it’s no wonder people stay put and seek to extend or develop.
The Government should also drop the demonisation of landlords – whatever the prevailing mood about individual landlords owning property, the fact is that without such housing options, the ‘housing gap’ would be far greater. Killing the buy-to-let market does not get more first-timers onto the ladder, and the sooner the Government realises this scapegoat is not the cause of all their housing market ills, the better.
The environment is not great – half of 18-34 year olds think it’s harder than ever to get on the housing ladder, and they’re right. Lenders too have their part to play in terms of greater access to high LTV lending – it’s no wonder that some people are put off by a deposit level of between £33k and £114k. If we can provide mortgages which require lower deposits, but not at the very highest of rates, then this too will allow more people to purchase.
The situation can be improved, but we are all going to have do our bit and those in power might very well need to look at the questions and challenges first-timers really face in order to get to the right solutions.
Pad Bamford is business development director at AmTrust Mortgage & Credit
