First-time buyers - getting a foot on the property ladder
Thursday, 19 March 2009 5:01 PM
There can be no denying the last couple of years have been a pretty rough for the first-time buyer.
Over the past decade, the group has gone from being able to get a mortgage at the drop of a hat, but struggling due to high property prices, to the current climate - where prices are more realistic but obtaining a mortgage is near impossible.
As a consequence, the plight of the FTB is being reported more and more in the news, with headlines such as the 'bank of mum and dad' and 'boomerang children' splashed across the broadsheets every week.
So what can the FTB do to get that first foothold on the property ladder? And are Mum and Dad the only answer?
According to Communities and Local Government (CLG) research, the average first-time buyer is now able to buy a home for 15.4 per cent less than they were a year ago, with the average price for a first home in the UK at £138,089.
While this might spell good news for FTB's with some savings, trying to get a loan to take advantage of these lower prices is easier said than done. And most FTB mortgages now require a minimum 25 per cent deposit, i.e. £34,522 based on the average price; a hefty sum given the median salary in the UK is just £25,123, according to the Office of National Statistics (ONS).
But Jaedon Green, head of mortgage development at the Halifax, the leading mortgage lender for first-time buyers, says there are other options available with lower required deposits. He says: "Our recent study into FTB affordability shows that the house price to earnings ratio - a key affordability measure - has improved significantly over the past 18 months.
"However, while the 'Bank of Mum and Dad' is an option for some first-time buyers, many cannot rely on their parents alone for a deposit. That's why we offer an exclusive range of mortgages designed specifically to help FTB's onto the property ladder.
"Our FTB Choices range offers a menu of features to help cut the cost of buying a home.
"FTBs with a deposit of 15 per cent or more are able access our range of homebuyer mortgages that includes free conveyancing when a main bank account is opened with us. If they are struggling to find a deposit, there are a number of affordable housing schemes available including shared equity and shared ownership schemes.
"The government recently launched a new shared equity scheme, HomeBuy Direct to help up to 18,000 first-time buyers into affordable home ownership. Together with participating house builders, the scheme offers an equity loan of up to 30 per cent of the purchase price to first-time buyers, enabling them to purchase new build properties."
However, the Halifax discovered earlier this year, how FTB's struggled with the jargon of buying a home and getting a mortgage, and given the huge financial commitment, many were left not knowing how to go about the process of buying their first home.
Mr Green says FTB's must know what they're getting themselves in for. He added: "Our experience shows FTB's need a combination of advice, expert knowledge and mortgage deals which help make the first steps on the property ladder easier.
"It's easy to get caught up in the romance of buying your first home, but have you checked out the local facilities and thought about the consequences of the local environment? For example, a flat over a takeaway restaurant will suffer from cooking smells at night, but will not necessarily during the day which is when most people will view the property. Or if the house is on a flight path, does the local airport operate night flying?"
Certainly, one of the biggest worries for anyone considering making the first step onto the property ladder is not being able to make repayments. Given the increasing number of redundancies and unemployment in the UK, long-term affordability is no doubt a key concern for those thinking of buying their first property.
Housing and homeless charity, Shelter, says anyone worried about making repayments should act quickly to avoid repossession. Shelter's deputy director of communications, Caroline Davey, says: "You should always get independent financial advice before you decide to go ahead with any property purchase.
"We suggest that you to talk to an independent financial adviser who will be able to help you work out what you can afford, and choose the right housing option accordingly. Independent financial advisors should be registered with the Financial Services Authority. They usually charge you for their services."
But struggling on your own or with a partner isn't the only way of buying a home. Shared ownership and government run schemes can help FTB's to make the initial step, and also spread the financial burden.
Ms Davey says: "The First Time Buyers Initiative is a shared ownership scheme run by the government's Homes and Communities Agency (HCA).
"Under the scheme, you will need to buy a minimum of 50 per cent of the property, and to pay a monthly fee for the remaining 50 per cent. To be eligible, you must be a first-time buyer with a household income of less than £60,000. The scheme is open to key workers, social housing tenants and others who meet certain criteria.
"Many people are currently locked out of the housing market, not just FTB's. Shelter would like to see a significant increase in the supply of new affordable housing to ease housing pressures across the market, and to provide more shared ownership properties which are suitable for first-time buyers."
For anyone able to buy in the current economic climate, they must be well placed to negotiate on price and get 'more for less'. The National Association of Estate Agents (NAEA) said earlier today how sales prices on average were 7.5 per cent lower than the asking price, putting FTB's in a stronger position to get themselves a bargain.
Thomas Watson, an account manager from London, became an FTB last year. He says: "My fiancée and I exchanged last September and it took us about three to four weeks to find a property.
"We were lucky enough because we managed to have the property before everything went horribly wrong with the banks last October, so it was quite easy. I also have experience in the domain, as I used to be an estate agent in London.
"We also had a nice part in cash, about 19 per cent of the asking price for a deposit. We wanted to buy because we thought it was the perfect time, the prices were going down, we had this amount in cash and the banks were still lending! And it's also nicer to have something at the end, in comparison to renting.
"The flat, in Clapham, was valued at £425k in 2007 and the asking price when we bought it was £395k. We managed to have it for £370k."
While 'picking up a bargain' may be great news for the weary FTBs, the parental bank is still having to help many to reach that first property rung.
Peter Bolton King, chief executive of the NAEA, thinks first-time buyers shouldn't have to rely on the generosity of their folks. He says: "The reality for many first-time buyers in Britain today is that the only bank that will help with a deposit is the Bank of Mum and Dad.
"The NAEA knows that there is a huge demand for property out there and that potential first-time buyers are exploring the market in larger numbers than we have seen for months.
"However, that will not translate into sales and bring the confidence needed to get the market moving again, when the only people willing to give a foot up onto the housing ladder are parents."
Estate agents are noticing this increasing trend in their sales figures, with numerous examples of secured sales being aided through parental funding.
In the capital, where prices will always make it difficult for FTB's to buy a home, the Bank of Mum and Dad is becoming more and more frequent. Daren Haysom, sales manager at London based Foxtons in Islington, said: "Prices have come down but rentals haven't reduced as significantly, so there are affordable properties out there and it's more cost efficient as lenders are coming back with regulated but sensible mortgages.
"We're seeing a lot of parents putting their savings into their children's purchases as a part-share investment or as a gift because savings are no longer bringing good returns. The time to buy is now as it might not be a very big window between the lenders coming back into the market and prices staying low so it's a good time to pitch this idea to parents.
"All areas will now have a wider range of properties for first-time buyers but there will be more choice and more for their money the further away from the centre that they go such as east London or into south London.
"There are also good deals to be had on new builds where developers need to keep things moving along. There are more key workers schemes than before with places from housing associations and the government."
With the banks still reluctant to lend, the Bank of Mum and Dad may be the only resource left for the weary FTB.
Sarah Garrod
