The flat housing market of recent years has thrown up a generation of first-time buyers who can't afford to clamber on to the property ladder. The government has now revealed its attempt at a solution to this seemingly intractable problem.
The NewBuy Guarantee, the latest government plan to boost the housing market, was yesterday trumpeted by David Cameron as being "a vital boost to the housing market" which will help up to 100,000 first-time buyers.
Shadow housing minister Jack Dromey disagreed, of course. "It's too little too late," he said, conceding "but at least it's something from a Government that has done virtually nothing to tackle the worst housing crisis in a generation."
So is it likely to offer a vital housing boost? Or is the move a desperate measure by a government that has let the property market collapse?
Under the scheme the Government – along with house-builders – will provide security for mortgages taken out on a new-build house or flat. It will allow lenders to offer mortgages on newly-built properties to people with just a 5 per cent deposit. The deal means that instead of a typical buyer requiring a £40,000 deposit for £200,000 property, they will only need £10,000.
Security will be provided by government and developers. The latter will put 3.5 per cent of the purchase price into an indemnity fund for each property sold, while the Government will provide a 5.5 per cent guarantee.
With that security in place lenders, in theory, will be happy to offer 95 per cent loans. They'll do so on the understanding that even if property prices fall and the borrower falls into negative equity and defaults, they will still be able to get their money back.
Lenders already signed up are Barclays, Nationwide and NatWest, although Santander said it is close to agreeing deals with builders. They're keen on the scheme as it will allow them to offer lucrative loans to people they would have otherwise turned down.
Barclays is offering a two-year fixed mortgage at 4.99 per cent. Andy Gray, head of mortgages for Barclays, said: "We believe this will boost housing market confidence and support the flow of new housing, providing positive consequences for the economy."
Nationwide is offering a three-year fixed rate at 5.69 per cent and a five-year deal at 5.99 per cent but only through mortgage advisers. NatWest's fixed deals are two-years at 4.29 per cent or five years at 4.99 per cent.
Builders are keen to see the scheme successful as it will boost their business and allow them to get properties off their books. Stewart Baseley, executive chairman of the Home Builders Federation said: "NewBuy provides a vital kick-start for builders, who will be able to build the homes and create the jobs that the country desperately needs." Builders involved include Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey, with Crest Nicholson joining the scheme soon.
But new-build properties may not prove to be bargains. For starters, they often include a premium on the sale price that can reduce as soon as someone moves in. Taking a 95 per cent mortgage on such homes in the past has proven a financial mistake. Also anyone tempted by the lower rate two-year fixed deals should think carefully, warned Mark Harris, chief executive of mortgage broker SPF Private Clients. He said it's not a good bet in the low interest-rate environment when rates are not expected to rise for a couple of years. "Because borrowers will only have a small deposit, if property prices do fall further, it could be difficult to remortgage again in two years' time when the loan-to-value may have risen above 95 per cent."
There's also the prospect of interest rate rises. While most experts agree the base rate won't climb for at least another 12 months, it will do eventually. When it does, mortgage rates will climb quickly and many first-time buyers – who struggled to afford deals now – could soon find monthly mortgage repayments spiralling out of reach.
Meanwhile, the Government has also polished up the moribund Right-to-Buy, which encourages council tenants to buy their homes. The scheme – launched in 1980 by Margaret Thatcher – had become less attractive over the years, so much so that less than 3,700 sales were made last year, compared to a peak of 84,000 a decade ago.
From April, for council tenants the discount cap will be trebled, and quadrupled in London. The Government claims the move will give up to two million social tenants the opportunity to buy their council home with a discount of up to £75,000.
Housing minister Grant Shapps said: "We want to help everyone feel the pride of home ownership."
But Jack Dromey pointed out: "There are nearly two million families on waiting lists. Every council home sold must be replaced by another one."
IN NUMBERS: THE HOUSING MARKET
Number of first-time buyers in December 2011 (up 7% from November, and 14% from December 2010)
Value of mortgages approved to those buyers, December 2011 (up 10% on November, and 21% on December 2010)
The average loan-to-value ratio of houses in December 2011 (November 2011 80%, December 2010 79%)
Proportion of homes bought below £250,000 stamp duty threshold by first-time buyers in December 2011 (up from 50% in November). Stamp duty concession ends this month.
Year-on-year drop in house prices, from January 2011 to January 2012
Average house price in England and Wales
Vox pop: 'I don't want a mortgage – that's why I rent'
Niamh Murphy, 23, a nurse living in London, is representative of a generation of young people for whom a mortgage – under any circumstances – is not the aspiration that it was for past generations.
Even with the Government's new scheme and lower deposits, the money you would have to pay up front for a mortgage – and for years after – is the thing that puts me off. Also, I still want to travel, I may have to move for work – I don't want to tie myself to one place. We're a more mobile generation. We have more opportunities to work and to travel. That's why we rent. There is a flexibility you would not have with a mortgage. Women in particular are more likely to move for work than they have been before. It is too early in life to settle."
(Also pictured: Niamh's housemate Sarah Louise Roche, 25, also a nurse, and their friend Nicole Mulhall, 26, another nurse, who also rents in London.)
Caroline Baker, 24, a nanny from Fulham
It's become the norm for young people to rent together for a few years. I live with friends in London and am happy with that. This new scheme certainly isn't going to make me rush out to get a mortgage, but I think it is a good thing to make it easier for first time buyers at a time like this. Potentially a few years down the line I might make use of a scheme like this, but not yet."