Ailing housing market needs shot of new blood
First-time buyers hold the key to rejuvenating property prices, but ministers and lenders have to do more. Chiara Cavaglieri and Julian Knight report
Sunday 03 April 2011
The most authoritative survey of UK house prices – compiled by the Land Registry – paints a pretty stark picture. House prices have been falling for the past five months and now sit lower than they did a year ago. What's more, the number of sales is at a level last seen during the depths of the financial crisis of 2008. Restrictive mortgage lending (Lloyds lowered the loan to value – LTV – ratio on many of its mortgage products last Wednesday) and economic uncertainty all play their part in the continuing house price slide.
Property experts say there is only one way out of the market morass: getting the number of first-time buyers – again approaching record lows – back into the property market.
"First-time buyers are the essential building blocks of the housing market," says Samantha Baden, a property analyst at Findaproperty.com. "Unless we have a steady supply of new first-time buyers coming into the housing market, there's a domino effect on every further link in the property chain. Liquidity dries up and the number of transactions slows down."
The drop in first time buyer numbers is stark. In 2000 there were 500,000, last year just 200,000. A report from HSBC last week concluded that house prices would have to fall 43 per cent to restore the same price to earnings ratio as was prevalent in 2000. The reports also slammed Government-sponsored shared equity schemes as "woefully inadequate". No wonder, according to the land Registry sales of £150,000 to £200,000 homes are down 45 per cent from December 2009.
House price declines have done little to attract new homeowners, with the number of first timers falling by 13 per cent in the past year, according to the Council of Mortgage Lenders. Lenders are still demanding daunting deposits and net mortgage lending, after repayments fell last year to £8.15bn – the lowest level since the Bank's records began. More and more young would-be homeowners are now forced to rent or live with their parents until things pick up.
"Many with student loans outstanding or expensive lifestyles are finding it impossible to save the minimum of 10 per cent deposit to buy a property on their own," says Helen Adams of FirstRungNow.com. "Lenders are being particular about who they lend to, which is to be expected with the jobs market being rather insecure."
With first-time buyers all but locked out of the market and the knock-on effects taking their toll, the industry is trying to work together to find a solution. In the Budget, the Government unveiled the new FirstBuy scheme which will be available for one year to first timers looking to buy a new-build property. Buyers have to cover a 5 per cent deposit while the Government and house builders stump up 10 per cent each as an interest-free loan for five years. This brings buyers up to the 25 per cent lump sum needed to access the best mortgage rates. While it has been cautiously welcomed by many, the scheme is set to benefit only 10,000 people, raising criticism that more needs to be done.
"Landlords are buying one- and two-bedroom properties which keeps the prices up. I'd like the Government to have done more to disincentivise this practice as it keeps the first-time buyers out by inflating the prices at the bottom of the market," says Ms Adams.
The abolition of stamp duty for first timers on properties up to £250,000 has been a help. Shared ownership has also been around for about six years and enables them to buy a share of a property with a small deposit, taking the mortgage in conjunction with a housing association. There's also a rent-to-buy scheme allowing social tenants to fix a property price and pay reduced rent until they save enough to buy a proportion of that property on a shared ownership basis.
A few lenders have their own facilities in place. Lloyds has the Lend a Hand scheme which enables first-time buyers to put down a deposit of 5 per cent, with "Helpers" (usually parents) putting up their savings, worth 20 per cent of the property value, as security. The mortgage is fixed for three years; afterwards, helpers can in theory get their money back – although this is only if the buyer doesn't default on payments and the mortgage has reduced to 90 per cent or less of the property's value. Lloyds is also working with local authorities to offer "Local Lend a Hand" which follows the same model but with councils providing 20 per cent security.
For parents unable to stump up the cash, National Counties offers a similar model; the Family FirstGuarantor mortgage allows first timers to borrow up to 95 per cent by using their parents' spare equity as guarantee. "Again the lender is looking to lower the risk by taking additional security but instead of parents providing a lump sum, they are using the equity in their home as collateral," says David Hollingworth of London & Country, a mortgage broker.
Otherwise, a parent can act as guarantor directly, promising to cover the mortgage each month if anything goes wrong. The Mortgage Works is the big player here, offering a whole range of guarantor loans including a two-year tracker at base rate plus 3.09 per cent, with a 1 per cent fee, for buyers with 80 per cent LTV.
House builders are also coming up with initiatives. Persimmon's Parent Payback scheme allows parents to contribute up to 20 per cent and earn 5 per cent interest for five years. A similar deal is available from Bovis called Jumpstart, and Barratt Homes and Hitachi Capital have teamed up to offer unsecured loans charged at 5.4 per cent APR (typical) worth up to 15 per cent of the purchase price, up to £50,000, to parents of first timers.
Some of the more generous standard first-time-buyer mortgage deals include a two-year fix at 4.99 per cent from Yorkshire Building Society, and a five-year fix at 5.89 per cent from Britannia/Co-operative both with a £1,995 fee and available at up to 90 per cent LTV. Skipton also has a two-year fix at 6.49 per cent with a £195 fee, at up to 95 per cent LTV.
Others argue, however, that the solution is far more straightforward – bide your time and save up for a bigger deposit. "Sadly, the most sensible way to help first time buyers is to stop interfering in the market, allow prices to fall back to affordable levels and for buyers to re-enter the market when they can afford to do so," says housing expert Henry Pryor. "With average prices falling for six consecutive months, it would be irresponsible to encourage property virgins into the market."
Expert View: Helen Adams, FirstRungNow.com
"Without first-time buyers there is no property market. Unless the bottom of the chain is active, nothing happens further up the property chain, and the whole market is stifled except for those buying second properties to rent out or holiday homes."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
You'll need £220,000 for a minimum wage in your retirement
Questions of Cash: I checked in with Air France in time and still missed the plane
Minister's pension promise to firefighters challenged
Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along
- 1 Planes go hybrid-electric in important step to greener flight
- 2 Antonio Martin shooting: Police and protesters clash over teenager's death just five miles from Ferguson, Missouri
- 3 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 4 Hip hop is both racial and political, and for Iggy Azalea to suggest otherwise is insulting
- 5 Man hospitalised with pneumonia after downing eggnog at office Christmas party
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens