It’s often said that first time buyers are the lifeblood of the housing market. Personally I suspect that they are actually the life blood of house builders most of whom have until recently been selling their product to the 400-500,000 first time buyers who were sold the dream of home ownership on the back of ever increasing house prices.
The typical home owner moves every 8 years but just recently this has increased. First time buyers however sell every five years. They get married, have kids, get a dog which needs a garden… They find that they’d like more space and having done little more than just live in their home, many found that the extra deposit required had been kindly produced courtesy of house price inflation. On they trudged up the housing ladder.
Not any more. Although they won’t know about this problem in the cobbled mews of London where posh kids buy houses with the help of mummy & daddy more typical first time buyers who bought after 2006 have now lost the deposit they put down originally. Average house prices across England & Wales peaked in August 2007 at £199,612. Today they are 18% lower.
Back in 2007, at the hight of the property boom first time buyers typically borrowed 90% of the value of their first home and got a mortgage of £116,000.
In 2009 as we surveyed the wreckage of the banking crisis they borrowed 75%, typically £100,000.
Figures produced by the Council of Mortgage Lenders confirmed that last year the loan to value crept up slightly to 77% borrowing £104,000.
Back in 2007 there were nearly 400,000 first time buyers but in 2010 there were less than 195,000. But here’s the main difference. In 2007 with 90% LTV’s the average deposit was just £12,700. Last year they had to find more than £31,000. That’s a rise from 37% of annual income four years ago to nearly 100% today. No wonder they aren’t buying houses any more!
With average house prices still 18% below the peak many of those who have bought since 2006 are in negative equity and even if they were prepared to sell at a loss, they no longer have the deposit they need for their next house. Over a million are effectively now prisoners in their own homes, unable to allow those on the next rung of the ladder to move on and blocking the supply of first time buyer properties for the next generation – if there were any!
Housing minister Grant Shapps has been scampering around trying to dream up incentives to get first time buyers back doing what the developers need them to do. He’s come up with suggestions including council paid deposits, the ‘mates mortgage’ and now he’s got ‘FirstBuy’. Government backed (that’s taxpayer backed) money to the tune of £1.8bn is going to be spent propping up developers and effectively putting ‘affordable’ into Affordable Housing.
As the CML figures confirm, what is wrong with the housing market, particularly for those at the foot of the ladder is that they now need to find a year’s worth of income just as a deposit. Even if they are tempted by the prospect of owning their own home, is it right to wedge them with this kind of debt?
The next generation will have student loans to pay off, car insurance costing thousands and the prospect of being 40 before they can buy their first home. And they say youth is wasted on the young.
Links.
http://www.cml.org.uk/cml/publications/newsandviews/83/303