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First-time buyers and the property ladder

Kate Faulkner explains why rising property prices shouldn’t necessarily keep first-time buyers off the property ladder.

Kate Faulkner

The current reports of house prices rising rapidly is translating into media stories suggesting that affordability is worsening and it’s impossible for first time buyers to get on the ladder. This kind of rhetoric isn’t helpful, it scares people and for some will mean they will just give up and carry on living at home or renting, not bothering to save for a deposit or looking into government schemes that can help them on the ladder, such as Help to Buy, Shared Ownership and the newly launched First Homes. As an industry, we shouldn’t be ‘fuelling the fire’ without offering some reassurance and ‘ways forward’ for those who are desperate to own a home. After all, it isn’t their fault that lenders pulled low loan to value mortgages last year, expecting prices to fall, only to see them rise in double digits. 1 Explain why average house prices in your area are meaningless! Whatever the average house price in your area, this is unlikely to be the amount that first time buyers will pay and in fact it could be a lot less. Let’s take Nottingham where I grew up. Although the average house price in the City of Nottingham is £161,000, 15% of the properties available for sale are under £125,000, which for two people earning £35,000 should be relatively affordable. But if that’s too much, you can find two-bedroom shared ownership properties to purchase from £50,000, with a small deposit. These can be purchased with a minimum income of £19,899. 2 People can get a 25% contribution to their deposit It is tough to secure the deposit for first time buyers, but many don’t realise that the Lifetime Isa will, subject to terms and conditions and caps, offer a 25% top up on their savings. This can save a year or more saving for a deposit, especially if two people who have a LISA are buying. 3 Apart from a few regions across the UK, most house prices since 2005 have risen in line with inflation The average price, according to the Land Registry is the UK is £256,405, this drops to £220,000 for the East Midlands and falls to £161,000 in the City of Nottingham. And although property prices are up by 8.7% year on year, this isn’t a good way to measure affordability as people don’t buy one year and sell the next (unless investing). If property prices had risen in line with inflation, they would actually be £170,000, £9,000 more. In the North East, affordability has improved dramatically since the last crash in 2007. Here, the average house price today is £145,893 up 13.7% year on year, but if risen in line with inflation they would actually be £207,006.95. 4 First-time buyer mortgage affordability has fallen dramatically Some great data which is hardly ever used by the industry or media is the Nationwide’s first-time buyer affordability index. According to this data, affordability ie the amount the mortgage takes up of take-home pay has fallen dramatically as interest and mortgage rates have become more competitive. Although prices may go up, if rates go down, affordability can improve. What this data shows is that since 2017, despite price rises, mortgage payments as a percentage of mean take-home pay have remained fairly similar. Of course it may go up in 2021, but when you compare this to 2007, today’s figures are looking pretty good: 5 Navigating first-time buyer government support It’s good news there is so much support for first time buyers to get on the ladder from the government, but there are two problems with it. Firstly, in my experience FTBs are very suspicious and secondly there is so much help, it’s actually quite difficult to work out which scheme is best for their circumstances. The revised government site, ww.ownyourhome.gov.uk is worth a look. Our industry’s job is to put roofs over people’s heads and the more help we give to first time buyers to get on the ladder, the more movers we will create to drive future business.The current reports of house prices rising rapidly is translating into media stories suggesting that affordability is worsening and it’s impossible for first time buyers to get on the ladder.

This kind of rhetoric isn’t helpful, it scares people and for some will mean they will just give up and carry on living at home or renting, not bothering to save for a deposit or looking into government schemes that can help them on the ladder, such as Help to Buy, Shared Ownership and the newly launched First Homes.

As an industry, we shouldn’t be ‘fuelling the fire’ without offering some reassurance and ‘ways forward’ for those who are desperate to own a home. After all, it isn’t their fault that lenders pulled low loan to value mortgages last year, expecting prices to fall, only to see them rise in double digits.

1 Explain why average house prices in your area are meaningless!

Whatever the average house price in your area, this is unlikely to be the amount that first time buyers will pay and in fact it could be a lot less. Let’s take Nottingham where I grew up.

Although the average house price in the City of Nottingham is £161,000, 15% of the properties available for sale are under £125,000, which for two people earning £35,000 should be relatively affordable. But if that’s too much, you can find two-bedroom shared ownership properties to purchase from £50,000, with a small deposit. These can be purchased with a minimum income of £19,899.

2 People can get a 25% contribution to their deposit

It is tough to secure the deposit for first time buyers, but many don’t realise that the Lifetime Isa will, subject to terms and conditions and caps, offer a 25% top up on their savings. This can save a year or more saving for a deposit, especially if two people who have a LISA are buying.

3 Apart from a few regions across the UK, most house prices since 2005 have risen in line with inflation

The average price, according to the Land Registry is the UK is £256,405, this drops to £220,000 for the East Midlands and falls to £161,000 in the City of Nottingham. And although property prices are up by 8.7% year on year, this isn’t a good way to measure affordability as people don’t buy one year and sell the next (unless investing). If property prices had risen in line with inflation, they would actually be £170,000, £9,000 more.

In the North East, affordability has improved dramatically since the last crash in 2007. Here, the average house price today is £145,893 up 13.7% year on year, but if risen in line with inflation they would actually be £207,006.95.

4 First-time buyer mortgage affordability has fallen dramatically

Some great data which is hardly ever used by the industry or media is the Nationwide’s first-time buyer affordability index. According to this data, affordability ie the amount the mortgage takes up of take-home pay has fallen dramatically as interest and mortgage rates have become more competitive. Although prices may go up, if rates go down, affordability can improve.

What this data shows is that since 2017, despite price rises, mortgage payments as a percentage of mean take-home pay have remained fairly similar. Of course it may go up in 2021, but when you compare this to 2007, today’s figures are looking pretty good:

5 Navigating first-time buyer government support

It’s good news there is so much support for first time buyers to get on the ladder from the government, but there are two problems with it. Firstly, in my experience FTBs are very suspicious and secondly there is so much help, it’s actually quite difficult to work out which scheme is best for their circumstances. The revised government site, ww.ownyourhome.gov.uk is worth a look.

Our industry’s job is to put roofs over people’s heads and the more help we give to first time buyers to get on the ladder, the more movers we will create to drive future business.

Link to Property Prices feature

July 27, 2021

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