Property is now more affordable for first-time buyers than at any time in the past 10 years. The average single woman, who in 1989 needed to spend an extra 16 per cent above net income to get on the housing ladder, now needs to spend only 38 per cent of her pay, according to figures published by the TSB. So how come estate agents' offices are not being flooded with inquiries?
It seems the confidence factor is now critical. The post-recession generation of buyers is the first to appreciate clearly that house prices can fall as well as rise. Many have seen the effects of negative equity, or have feared redundancy. Some may need reassurance that the bottom of the market has been reached.
But others have weighed the intangible negatives against the current advantages of buying and are taking the plunge. Chris Edwards, 23, was set to move into his new flat in Watford yesterday. As befits a trainee accountant, he negotiated an extremely good deal. He has bought a large, modern studio flat for pounds 35,000 under one of the last special rates offered to people buying repossessions. His mortgage with the Skipton Building Society is fixed at just under 5 per cent for three years. At pounds 150 a month he will pay half the amount he was paying in rent. Even taking the bills and insurance costs into account he will be better off for a guaranteed three years.
Why has he chosen this time to buy? 'Because it's cheaper,' he said. 'I suddenly realised it was possible, which it wouldn't have been a year or so ago.' Was he worried about negative equity? 'No, not given the money we are talking about. I think prices have probably come down as far as they will go. But I don't expect to make money out of it in the near future.'
Chris bought his flat and arranged his mortgage through GA Property Services in Watford. The company has produced a very good first-timer's guide to buying and selling and Watford is one of the offices targeting first-time customers.
Chris Ring, the manager at Watford, said that in spite of all the recent news about the property market, many people were still unaware of what buying a house involved. 'People still come in asking about 100 per cent mortgages, which barely exist any more,' he said. 'You have to sit them down and talk about what they can really afford.'
One big shock for new buyers is the cost of the purchase itself. Few people are aware that all mortgages for more than 75 per cent of the house value require a mortgage indemnity premium. (This is the lender's insurance against you defaulting.) For first-time buyers in Watford, who are borrowing pounds 40,000- pounds 60,000, the premium is likely to be pounds 1,200- pounds 1,500. 'We draw them up a cost sheet with all the fees on it - the indemnity premium, the survey fees, solicitor's fee, and so on,' said Chris. 'They rarely leave with a figure below pounds 3,000.'
The typical first-time buyer in Watford, as in most of the South-east, is looking to spend about pounds 60,000. This compares with the Nationwide's national average of pounds 46,000. Four or five years ago that price limited them to a one-bedroom flat. Now it can buy a two- or three-bedroom terraced house.
Ian Murray and Maxine Wood are looking for a house in Watford up to a limit of pounds 60,000. They thought about buying last September, but decided to wait because prices still seemed to be falling. 'I think things will get better from now on,' said Ian, 38, 'but I'm waiting to see what will happen in the Budget. I might feel differently if they put taxes up - income tax or VAT.'
The couple had come in to see GA's financial adviser Mark Trantum, who didn't shy away from pointing out unpalatable facts such as that interest rates are unlikely to remain this low for ever. He took them through the various mortgage deals available, offering thorough and up-to-date advice.
One reason companies such as GA are so keen to attract first-time buyers is because they can sell on their insurance policies through advisers such as Mark - although both he and his colleague Andy Halman were quick to point this out to the people they saw.
One of the charges they explain to customers is stamp duty, now payable at 1 per cent on homes costing more than pounds 60,000. The effect of this is to pull down the value of property that is really worth pounds 60,000- pounds 66,000 to below the stamp-duty level.
This is tough on those who are selling - many of whom will have lost money on their house - but it is good news for first-time buyers such as Ian and Maxine. GA, for instance, had just sold a three-bedroom Victorian terraced house in King's Avenue, Watford, which had fetched pounds 82,000 in 1988, to a first-time buyer for pounds 57,000.
Ian Murray and Maxine Wood were budgeting on spending about a quarter of their income on their mortgage. This makes them typical of the first-time buyers identified by the TSB in its recent affordability report. A year ago the average first-time buyer (male and female) would have had to spend 38 per cent of take-home pay on a mortgage. Now, as a result of falling interest rates, the same buyer is looking to spend 26 per cent.
The TSB's researcher, John Stewart, believes his affordability measure explains why the first-time-buyer market did not take off a year ago. (This year's improvement in house sales has been driven from the middle and top rather than the bottom of the market.) 'It's clear that when the market looked as if it was going to recover early last year, affordability was still poor,' he said. 'If affordability can be kept at current levels for a time, it will be the best fillip for the whole market for a good 10 years.'
This remark is clearly aimed at the Chancellor - although it still leaves him plenty of room for manoeuvre in the Budget. As Mr Stewart points out, if the Chancellor cuts the rate of mortgage tax relief to 20 per cent as planned, affordability will drop by pounds 18 a month. If he cuts interest rates by 1 per cent, however, it will increase by pounds 23 a month. As long as he keeps the current balance, 1994 could well be the year of the first-time buyer.
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