MSE Blog: The Government’s first-time buyer mortgage plan is flawed

Former_MSE_Guy · 23 November 2011 at 1:25PM

This thread is to discuss my MSE blog:

The Government’s first-time buyer mortgage plan is flawed, says a first-time buyer

Meeper · 23 November 2011 at 1:50PM

Of course it is over-stretching for first time buyer's to buy an average-priced home at £160,000. That kind of purchase price should be a 2nd or 3rd step on the property ladder, not a first. There are plenty of properties available for a lot less than this and that is where FTB's should be concentrating their efforts. Are they perfect? No. Are they where everyone needs to start? Absolutely. FTB's need to get their heads around the fact that they shouldn't be looking to purchase their dream property on the first step.

Another MSE Official Blog post which focuses on the negative. It is a good initiative which is at least trying to do something to stimulate movement. Why so negative all the time? Don't see many positive stories or blog posts coming out.

Wh05apk · 23 November 2011 at 1:53PM

At the moment anything to help is welcomed by the building industry, however your argument is flawed on a couple of points:

"Impossible to borrow
Someone on the average £26,000 annual salary buying the average £160,000 home with a 5% (£8,000) deposit would still need to borrow almost six times their salary to get a home loan, which is practically impossible. "

An average house is probably a 2/3 bedroom semi-detached family house, why would a first time buyer be looking at one of these? most single FTB's would be looking at a smaller house/flat for less than that - possibly £120,000? then it would be possible to borrow.

"New-builds ‘over-priced’
Another reason why the plan is suspect is because it is only available on new-build properties, as has been the case with so many recent state-trumpeted schemes.
I’m no expert on new-build values but the experts I talk to say they are normally over-priced. So not only will buyers pay too much, there is a chance their home’s value will fall over the years, putting many at risk of negative equity (where they owe more than their home is worth). "

Generally new builds are more expensive, but what you have to remember is that the asking price, should not be the selling price, haggle, and you will find prices become far closer to comparable "used" properties, also if new builds were over-priced, would that not imply the developers were making large profits? I can assure you that is not the case.

Wh05apk · 23 November 2011 at 1:55PM

You beat me to it Meeper, like you, it really annoys me when people talk about "average" houses, average buyers of average houses, usually have a family with 2 incomes and it will be a 2nd/3rd property as you say.

Thrugelmir · 23 November 2011 at 1:56PM

Meeper wrote: »

Another MSE Official Blog post which focuses on the negative. It is a good initiative which is at least trying to do something to stimulate movement. Why so negative all the time? Don't see many positive stories or blog posts coming out.

Good summarisation of the blog.

Conrad · 23 November 2011 at 2:04PM

This guy is talking nonsense.

Consider his line here;

"Someone on the average £26,000 annual salary buying the average £160,000 home with a 5% (£8,000) deposit would still need to borrow almost six times their salary to get a home loan, which is practically impossible".

Where does he get this notion that a FTB is 'entitled' to an average home?

Many of us start out in a 1 bed flat, not an averagely priced home.

Even in the South East there are plenty of properties in fair areas available for £100,000 and less. I can list links to Rightmove if needbe.
Furthermore, the Human condition is not static - things have always changed and people have to adapt. One of those inevitable adaptations is that many a singleton now finds it more affordable to buy with a partner.

Wh05apk · 23 November 2011 at 2:08PM

Funny how we have all focussed on the same - "average" my 17 yr old daughter has just started driving, but on her part-time minimum wage, she cannot afford to buy an "average" car (£15,000 ford focus?) can someone please tell me who I need to complain to?

brit1234 · 23 November 2011 at 2:24PM

I am not a mortgage advisor but a first time buyer.

I agree with everything in this article and think it is an accurate and balanced representation of the situation.

The clear problem with the housing market is prices are too high due to historical norms. This plan does not help first time buyers just builders keep their prices inflated.

If people can't save a deposit should they really be getting a mortgage. Also on a 95% mortgage for a newbuild you are instant negative equity.

Irresponsible lending got us into this situation with 100-125%, gift deposits, buy to let gearing, and self cert/liar loans from independant mortgage brokers. We don't want a return.

Thrugelmir · 23 November 2011 at 2:36PM

brit1234 wrote: »

I agree with everything in this article and think it is an accurate and balanced representation of the situation.

Expectations are the issue. Many years ago my first property was a flat. Price wasn't the issue, but the 2.75 times cap on borrowing on salary.

Wh05apk · 23 November 2011 at 2:38PM

The clear problem with the housing market is prices are too high due to historical norms. This plan does not help first time buyers just builders keep their prices inflated.

Disagree, when we bought our first property in '88, we were looking at about 6x our joint income (friendly employer/bank manager!) similar incomes now, would easily afford an "average" property

If people can't save a deposit should they really be getting a mortgage. Also on a 95% mortgage for a newbuild you are instant negative equity.

Agree.

Irresponsible lending got us into this situation with 100-125%, gift deposits, buy to let gearing, and self cert/liar loans from independant mortgage brokers. We don't want a return.

Its too easy to blame "irresponsible" lending - 100-125% lending served a purpose, and to be honest probably only accounted for 1-2% of the mortgage market, so not enough to influence it either way.

Thrugelmir · 23 November 2011 at 2:58PM

Wh05apk wrote: »

Its too easy to blame "irresponsible" lending - 100-125% lending served a purpose, and to be honest probably only accounted for 1-2% of the mortgage market, so not enough to influence it either way.

NRAM's mortgage book is £85 billion (as at 30/06/2011) around 7% of total outstanding mortgage UK mortgage debt. The membership of the CML is down a third since the peak in 2007. So there's still a long way to go in unwinding the excesses of the past.

MSE Blog: The Government’s first-time buyer mortgage plan is flawed

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