Has it ever been harder to get on the property ladder?

Help to Buy and 95pc mortgages are back, but with prices still soaring Generation Rent’s struggle is very far from over

MINISTERS have had yet another crack at fixing the market for first-time buyers. The much-maligned Help to Buy policy began a new era on April 1, with deals restricted to first-time buyers and price caps in place.

The aim is to target support at those who need it most. It’s the latest in a line of policies aimed at helping struggling first-time buyers that includes the launch of Help to Buy in April 2013. But these efforts are coming under intense scrutiny following the pandemic, which has given rise to a two-track market.

A desire for better homes and the chancellor’s stamp duty holiday in England have sparked a buying frenzy, with more sales agreed on March 23 than on any other day in the past decade, according to rightmove. yet those with small deposits have been frozen out by tight lending criteria and soaring prices. The proportion of first-time buyers fell by 12 pc between July and December last year compared with 2019, according to comparison website really moving.

And if some question Britain’s obsession with home ownership, figures released by Halifax this week show why. First-time buyers are saving up to £800 a year compared with the average renter across the UK — an increase of 8 pc in 12 months. The crunch has crystallised anger over what critics say is a consistent failure to tackle growing inequality in the market.

Long-term policies such as Help to Buy and Shared Ownership have been slammed for inflating prices and lining developers’ pockets, while rishi Sunak’s latest offering of mortgage guarantees to help those with small deposits has been dismissed as ‘window dressing’ by housing charity Shelter.

The Scottish Government launched its Help to Buy scheme in 2013, offering prospective buyers interest-free loans of up to 15pc.

But ministers pulled the plug in February, even though the initiative was meant to run until next year.

First-time buyers in Scotland can still benefit from the Scottish Government’s First Home Fund (FHF) and Low-cost Initiative for First Time Buyers (LIFT).

Launched in December 2019, FHF offers first-time buyers interest-free equity loans of up to £25,000 to help them get on to the property ladder.

To qualify, you’ll need to have a 5 per cent deposit. There’s no upper price limit for homes bought using the scheme, and both new-build and existing properties qualify.

When you apply, the Government will work out how much equity the loan covers. So if the property’s market value is £125,000 and you apply for a £25,000 loan, the loan will represent 20 pc of the property’s value.

When you sell, you’ll then need to pay back 20pc of the total proceeds, regardless of whether you sell at a profit or a loss.

The LIFT scheme is split into two parts. The Open Market Shared Equity scheme allows first-time buyers to purchase a stake of between 60 per cent and 90 per cent of a property for sale on the open market with a modest deposit.

The New Supply Shared Equity scheme works in a similar way, although it is limited to new homes and buyers will usually purchase a stake of between 60 per cent and 80 per cent. Priority for both schemes is usually given to social renters, members of the Armed Forces and disabled people.

Today, Money Mail asks whether ministers have failed first-time buyers — and if there has ever been a worse time to be one.

NUMBER CRUNCHING

IT CURRENTLY takes the average first-time buyer 21 years to build up a deposit if they save 5pc of their income, according to the resolution Foundation. In the early 1990s, it took four years.

The think-tank says saving for a deposit is currently the biggest barrier to home ownership. Mortgage rates are low compared with previous generations.

chancellor rishi Sunak tried to fix this in his March Budget by announcing state-backed 95 pc mortgages.

The move has already boosted the availability of such products sevenfold, as lenders have been given confidence to re-enter the market before the scheme officially launches on April 19 in the knowledge that others will follow. It mirrors the response to the post-financial crisis mortgage crunch, which coaxed lenders back to the first-time buyer market.

But the scheme is not limited to first-time buyers, and homes worth up to £600,000 are eligible. This has sparked fears that it will simply encourage households to buy properties they otherwise could not afford, further inflating prices.

Dominik Lipnicki, of your Mortgage Decisions, says this ‘will ultimately make it even harder for first-time buyers’. It’s also doubtful how attractive the offers will be. Based on a typical loan-to-income ratio of 3.6, a buyer would need an income of £71,000 to buy an average £269,200 home in England with a 5 pc deposit, says Shelter.

But the policy at least attempts to support first-time buyers, who have been the big losers from the stamp duty holiday, where no tax is payable on properties worth up to £500,000 — but first-time buyers don’t pay stamp duty on purchases worth £300,000 or less in any case.

It removed their one competitive advantage and contributed to annual price rises of 7.5 pc.

Mr Sunak has said first-time buyers will benefit from the holiday during the ‘tapering-off period’, when the threshold is reduced to £250,000 from June 30 to September 30.

But property expert Henry Pryor says aspiring homeowners have been ‘let down’ by ministers. He adds: ‘These guys have been pouring jet fuel on the market.’

HELP TO SELL

BORIS Johnson says the new 95pc mortgages will help to ‘turn Generation rent into Generation Buy’.

But in 2015, then Prime Minister David cameron made the same claim after his chancellor, George Osborne, announced the similar Help To Buy mortgage guarantee.

These measures follow a tendency to help first-time buyers keep up with rising prices, rather than tackling affordability. Help To Buy, in particular, has faced criticism for inflating prices by boosting demand

for new-builds. That was introduced after the 2008 crash to help those on low incomes who were shut out of the market.

It was originally open to all buyers, allowing them to borrow up to 20 pc of the cost (raised to 40 pc in London in 2016) of a new-build home from the Government for properties worth up to £600,000. It meant buyers needed only a 5 pc deposit and a 75 pc mortgage to make up the rest.

The new scheme will be restricted to first-time buyers and includes regional price caps, set at 1.5 times the average price paid by first-time buyers in each region, as of autumn 2018. Even critics accept that Help To Buy was successful in restarting the first-time buyer market. More than 290,000 homes have been bought using the scheme, with 82 pc going to first-time buyers.

But many believe it has outstayed its welcome. In 2018, the Resolution Foundation highlighted the ‘distortionary’ effect of Help To Buy on new-build prices and called for it to be scrapped. First-time buyers using the scheme pay an average 10 pc more for new-builds than those who don’t, according to research from Really moving in 2019.

It said government support was allowing developers to charge more for homes and encouraging buyers to spend more than they otherwise would. Last month, the Mail revealed that the UK’s five largest developers have been making around £6.4 billion a year through Help To Buy sales.

‘Help To Buy is more like Help To Sell,’ says Jeremy Leaf, a former chairman of the Royal Institution of Chartered Surveyors. The equity loans also carry risk as the rates are linked to the retail price index (RPI), putting buyers at the mercy of interestrate hikes. Users are already vulnerable because the scheme has let them stretch themselves financially.

Since February, Scotland’s Help to Buy scheme has been open only to smaller developers.

The Shared Ownership scheme, which allows those on low incomes to buy a 10 pc to 75 pc share in a leasehold property, suffers from similar flaws. But at least it is housing associations that benefit from the sales, which boosts cashflow for affordable homes.

BUILD, BUILD, BUILD

A MINORITY believe a houseprice crash is the only outcome that will truly save first-time buyers, but this is unhelpful. The Resolution Foundation modelled what would happen to how long it would take to save for a deposit under the Office for Budget Responsibility’s worst-case scenario for the market when the pandemic struck. It found it would cut the time needed from 21 years to just under 20. Lenders would also probably shut out first-time buyers as in previous crises, while homeowners would be less willing to sell, limiting supply.

A crash would also hit those who had bought their first home recently the hardest, and hurt the wider economy by destroying consumer confidence.