Buyers are still locked out of their first home purchase
Schemes to encourage first-timers are there but many are waiting until things improve. By Chiara Cavaglieri
Sunday 11 November 2012
The latest recession may not have put British households off the idea of owning their own home, but with many continuing to struggle with that first foot on the ladder, the property market has been forced to come up with new ways to get the housing market moving again. So why aren't struggling first-timers biting?
Mortgage rationing has meant would-be first-time buyers, unable to build up a hefty deposit, have been priced out of the market. Government schemes have been introduced to kick-start the market from the bottom up, but so far, the take-up has been poor. Only 250 homes were bought in the first four months of the Government's NewBuy scheme, for example, despite the aim to help up to 100,000 people move by 2015.
It is still early days, however, and the interest seems to be there at least. The Home Builders Federation has said this week that over 2,000 people have now reserved a new home through the NewBuy scheme since its launch in March and almost half of first timers say they would use affordable housing schemes to buy their first home, according to new research from Lloyds TSB.
"Affordable housing schemes play a key part in helping first-time buyers onto the property ladder," says Stephen Noakes, the director of mortgages at Lloyds TSB. "However, many may be unaware of how these schemes can help them, or indeed the availability of them in their local area."
Under NewBuy, participating lenders are encouraged to offer mortgages at a higher loan-to-value for newly-built homes. The risk is shared with housebuilders and the government, who provide a guarantee in the form of a mortgage indemnity fund, through which lenders can claim back financial losses in the event of repossession. Buyers only need to save for a 5 per cent deposit, contacting local building developments or speaking to a mortgage adviser to see what properties are available in their chosen area.
"There is a relatively limited number of lenders participating and the method of accessing rates varies between lender – some are direct, such as NatWest, some through advisers, like Nationwide and some only through a builders' panel of advisers, including Barclays," says David Hollingworth from mortgage broker London & Country.
The Government has also pushed more money into FirstBuy, this time a shared-equity scheme for first timers acquiring new-builds. Here, the developer and Government team up to provide a 20 per cent equity mortgage so that the buyer needs only a 5 per cent deposit with a traditional mortgage picking up the remaining 75 per cent. There is no interest to pay on the equity loan for the first five years, after which a nominal 1.75 per cent is payable in year six and 1 per cent over inflation after that.
The idea behind it is that buyers benefit from the lower initial deposit, sharing risk against falling house prices and cheaper ongoing monthly repayments. When it's time to sell, they hand over 20 per cent of any increase in value, although if the value has dropped, they are still responsible for repaying the mortgage and the equity loan. So-called "staircasing" is also an option after year one, which means purchasing a higher share, based on the current market value, with the option to keep doing this until they own the house outright.
With shared-ownership schemes, buyers purchase a portion of a property from a housing association, typically 50 per cent, and pay rent (often cheaper than private rents in the same area) on the rest. Lenders are relatively comfortable with shared ownership, although they may not offer their core rates. So, buyers with a much smaller deposit aren't excluded and again, staircasing through to full ownership is available.
"People are quick to make assumptions about shared ownership, but the benefits are clear," says Kush Rawal from Thames Valley Housing. "It's especially so now, when mortgage finance is restricted and property prices, particularly in and around London, are unrealistically high for many first-time buyers."
The problem remains, however, that all of these schemes are only available to key workers, or first time buyers with an annual income of less than £60,000. They can also be complicated and expensive, while critics say that these schemes are mainly of benefit to housebuilders and do little to stimulate the market beyond new-build homes. Aspiring homeowners may be willing to simply sit it out and wait till conditions improve and they can save up for a decent deposit.
"Ideally people want to buy in the traditional way, without the complexities of shared equity or shared ownership – or even joint ownership (buying with a friend or family member) and with property prices not going up, there isn't the desperation to get onto the first rung of the property ladder as there was five years ago," says Helen Adams of First Rung Now.
The wait may not be as long as you think either, if the Bank of England's Funding for Lending Scheme finally takes effect in the right areas. Lenders should already be passing on the cheaper finance they've been enjoying through the scheme to first time buyers and mortgage prisoners but so far, they have continued to support would-be homeowners with bigger deposits and remortgage customers with equity in their homes.
However, some lenders have shifted their focus to more innovative products aimed firmly at the first-time market. Aldermore, Lloyds and Bath Building Society offer guarantor mortgages whereby family members can offer up their home or savings as security. Saffron Building Society has even pushed a new mortgage rewarding buyers with a good track record of renting, but this week, the big move was the Co-operative Bank launching a best-buy loan fixed for two years at 3.99 per cent with no set-up fee.
Borrowers require only a 10 per cent deposit to apply for the loan, so this could go some way to helping the bank reach its pledge to lend £360m to first-time buyers in 2012. More importantly, it could be the gauntlet laid down for other lenders.
Case study: 'Without FirstBuy, it would have taken me 10 years to save for my first deposit'
At just 22, Amy Dean is bucking the trend as the proud owner of a brand new one-bedroom apartment thanks to the Government-backed FirstBuy scheme. Having already saved up the £8,000 needed to cover the 5 per cent deposit, the hairdresser has been living in her new home at Redrow's Cannon's Wharf development in Tonbridge, Kent, for the past three months.
"I'd rented since I was 16 and I didn't want to throw away any more dead money," said Amy. "I'd just come out of a relationship where I'd been living with my partner and I made the choice that it was the perfect time to get onto the property ladder."
Unable to save tens of thousands for a deposit, going down the traditional route wasn't an option. Now she has secured a FirstBuy mortgage with NatWest and is paying just £575 a month, a welcome respite after paying almost double that renting with her boyfriend in Tunbridge Wells.
"Had FirstBuy not been available it would have taken me another 10 years or something silly to save up enough money," she says.
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