Home ownership falls but there is hope for the first-time buyers
OWNING A home is an aspiration for many, particularly young couples. Yet the cost of a first property, combined with the difficulties of saving adequately for the deposit, has shown a declining trend in ownership.
The Government’s annual English Housing Survey reveals the number of young adults owning a home has fallen by a third in a decade. Owner occupation remains unchanged for the fifth consecutive year but renting among 35-44 year-olds has jumped.
Even the cheapest homes are beyond the reach of 40 per cent of young adults in England. The Institute for Fiscal Studies calculates that with just a 10 per cent deposit, only 60 per cent of 25-34 year-olds could borrow sufficiently to purchase the least expensive home.
Saving for an initial mortgage is getting harder. Twenty years ago, if relying on disposable income, it took three years to join the property ladder but now takes 18 years.
Britain’s largest mortgage lender, Halifax, says the average price of a first home is £208,741, up from £172,659 in a decade and deposits have increased from £19,364 to £33,127. It estimates that prices will rise two to four per cent in 2019. Jackson-Stops predicts a 1.1 per cent increase, Knight Frank one per cent and Strutt & Parker a rise of 2.5 per cent.
Nationwide Building Society says the average price of a home is now £211,966. Estate agents apportion the recent small increases to uncertainty over Brexit but feel confidence could return with low interest rates, subdued inflation and rising employment.
Mortgages for first-timers are at their lowest for a quarter century. A home loan with a fiveyear deposit can secure a twoyear, fixed rate deal at 3.33 per cent, down from 4.02 per cent a year ago.
By comparison with 10 years ago, Bank base rate has fallen from two to 0.75 per cent whilst the average mortgage rate for a fixed five-year term with a 75 per cent loan to value has reduced from 5.28 to 2.02 per cent.
The pace of home loans increased by five per cent last year to 6.9m with first timers accounting for over half.
The drive has resulted from three factors: the Help to Buy scheme, an easing of the rules for lending and the increasing reliance on parental support for finance.
Today there are 14.8m owner-occupiers out of 23.2m households. England saw the launched a 100 per cent mortgage for first timers but with the key proviso that the loan must be supported by the family. The Lend a Hand mortgage needs no deposit but 10 per cent of the property’s value has to be deposited with Lloyds for three years, earning 2.5 per cent.
In return, the mortgage rate is set at 2.99 per cent. After three years, provided the repayments have been kept up, the bank returns the deposit in full to the family member. The maximum purchase price is £500,000. New build properties are excluded as their price is often above true market levels and other incentives are available.
Banks continue to battle for their share of a £1.37 trillion market. Their earnings on noncommercial mortgages may not be as attractive as other fields but the Bank of England is more relaxed, requiring less capital to be set aside than any other form of lending.
Spanish-owned Santander has now secured 11 per cent and is lending longer with the same number of loans for two as for five-year terms. In January, HSBC cut rates on 31 mortgage products and other banks and building societies are likely to follow.
First timers benefit from no stamp duty on properties up to £300,000. This concession was extended in the autumn budget when Chancellor Philip Hammond also announced new buyers could benefit on shared ownership properties which are valued up to £500,000. This measure will be retrospective which enables any first timer who bought earlier will benefit.
The Help to Buy scheme should be a major help. Since 2013, the Government has lent £9.9bn. It is available for new build homes with up to one-fifth of the cost lent, rising to 40 per cent in London. A deposit of only five per cent is required with the loan interest-free for the initial five years.
Another carrot is the special Help to Buy ISA. This is a great way to save for a deposit with the Government adding 25 per cent. Up to £2,400 annually can be invested which gains a £600 bonus. The Government caps its bonus at £3,000 but as this is per person, a couple can gain twice the benefit.
Unless plans change, the account has to be opened by November 30. Outside London, the money can be used to buy a property up to £250,000.
From April 2021, a new Help to Buy Equity Loan scheme will run for two years. Only available to first timers, it will apply to homes with a market value capped on a regional basis set at 1.5 times the current forecast. This means the range will run from £186,100 in the North-East up to £600,000 in London.
Another way forward is to open a Lifetime ISA, often referred to as a LISA. Each adult under 40 years can open one and contribute up to £4,000 annually which the Government will top up by 25 per cent.
Homes up to £450,000 can be bought using a LISA. If using it to effect a purchase, the LISA must have been running 12 months. If no property has been secured, the money is not lost but can prove to be an excellent way to save towards retirement. Make sure that the LISA is invested in equities rather than a deposit account to gain far more growth.
Before applying for a mortgage, first timers should ensure as high a credit scoring as possible. Taking out a credit card or two and using it correctly, always paying off fully each month, should help as it shows financial responsibility.
Advisers also suggest cutting out luxuries as lenders look beyond income and savings to determine ‘affordability’. When checking bank statements, they will take into account regular costs ranging from utility bills and licensing such as for a car and television to mobile phone use and gym membership.