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

The Daily Telegraph - Business - - Business Comment - IS­ABELLE FRASER

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

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