Goalposts have been moved again for first-time buyers
Dearth of low-deposit loans and the end of Help to Buy have doomed those trying to get on housing ladder
Before the pandemic, first-timers made up the biggest proportion of property buyers. It looked like the Government’s policies to boost home ownership – squeezing landlords and promoting schemes to help get young people on the ladder – had actually, finally worked.
But now they are trapped, with each week bringing a new, punishing hurdle – and it’s partly due to the Government’s short-sightedness.
First-time buyers who had been saving diligently for a deposit found that during lockdown the goalposts had been moved. Cautious banks withdrew low deposit mortgages. According to comparison site Moneyfacts, there are now 68 mortgages with a 10pc deposit available, while at the beginning of March there were 779. For those with a 5pc deposit, there are just 20 on the market.
The banks reviving these deals have imposed severe restrictions. Nationwide, Britain’s second biggest lender, initially tripled the minimum deposit from 5pc to 15pc, before offering some with a 10pc deposit but with added conditions.
For potential buyers that change represents thousands of extra pounds they now have to find. Some luckier first-timers may be able to get family help to make up that difference.
But there’s a problem there too: now Nationwide has tightened its restrictions on gifting from the Bank of Mum and Dad, saying that it won’t lend to buyers with low deposits unless they saved 75pc of it themselves, to ensure they will be able to make the repayments. This is just one lender, but if this kind of caution becomes more widespread it will have a huge impact on the market. About two fifths of all mortgaged first-time buyers had assistance from the Bank of Mum and Dad last year, according to estate agency Savills.
Nationwide has also said it won’t lend on properties less than two years old, because they carry a new-build premium that will be lost and could land the buyer in negative equity.
All this underlines how cautious banks have become – and how difficult it is to get a mortgage if you are seen as “risky”.
Lenders are increasing checks on all applicants, while the few that offer low deposit mortgages are being overwhelmed by demand and almost immediately pulling them from the market.
Low deposit mortgages also have much higher interest rates, meaning first-time buyers who can access them will pay much more for the privilege at a time when the Bank rate is at a record low. Those buyers who are left out have few options remaining. They could wait and hope more mortgages come back on the market, while benefiting from any price falls as the recession bites and the furlough scheme winds up. But as the economic outlook darkens, these risk-averse lenders will remain cautious, meaning this problem could stretch well into next year or beyond. These buyers may not want to wait a year simply because they can’t get a mortgage; they want to get on with their lives.
For many, the only other option is Help to Buy, the scheme where you can buy with a 5pc deposit and a government-backed loan.
With time running out on the imperfect but vital scheme, the Government was urged to extend it. And it did – by just two months, only helping those affected by building delays caused by lockdown.
It was a damp squib. Yes, the scheme has major flaws – raising prices and lining the pockets of developers – but an extension of the current system by a year or so could have filled the vacuum created by nervous banks withdrawing from the market.
Without a steady stream of credit from lenders, developers will also retreat until it is less risky to build, potentially leading to a crash in housebuilding levels.
The next iteration of the Help to Buy scheme will be harder to access for many. In April 2021, regional price caps will be brought in, excluding tens of thousands of people.
This is, by design, to taper down the programme that has been in place since 2013. It will also be limited to first-time buyers, which is perhaps something that should have been done years ago. Last year, the National Audit Office said that 19pc of buyers who used the scheme had previously bought a property.
Next year’s price cap changes will penalise buyers because they live in an expensive part of their region, or want to buy a larger property in a more affordable area.
For example, would-be buyers in Northampton would be unable to purchase average priced semidetached family homes as they are typically more expensive than the £261,900 limit in the East Midlands. Ordinary buyers in other towns such as Cambridge, Harrogate, Warwick and York could also be excluded from the scheme.
In ordinary circumstances, those left out by the scheme would have been able to access mortgages and get on the ladder that way. But these are not ordinary circumstances – and that needs to be recognised.
This is a kick in the teeth to the desperate first-time buyers who were being told by the Government that they could get on the ladder if they followed the right steps.
With a recession on the way, and a winding-up of furlough that will hit young people hardest, first-time buyer levels are likely to crash.
The Government’s pro-home ownership rhetoric – at the cost of promoting a sustainable rental sector – is hollow if it won’t support young buyers when they really need it.
‘With a recession on the way, and a halt to furlough that will hit young people hardest, first-time buyer levels are likely to crash’
Two fifths of first-time buyers had assistance from the ‘Bank of Mum and Dad’ last year