Large Deposit Requirements Exclude a Generation of FTB's

HAMISH_MCTAVISH

Britain is in danger of creating a whole generation of people who will never be able to buy their own homes.


This is the conclusion of Professor Steve Wilcox, chair of the Centre for Housing Policy at the University of York, who in collaboration with the specialist insurance company Genworth Financial, has written a report on the extreme drop in first-time buyers in the UK housing market.


The report, Financial Barriers to Home Ownership, shows the number of mortgages worth 90% of a property's value (the type normally taken out by first-time buyers) has fallen from 245,000 in 2006 to 28,000 in 2009 – a decrease of 89%.

This means 100,000 first-time buyers have effectively been excluded from the market year on year.


The problem is the old one of deposits.

Until the last couple of years, people could borrow 100% of their new home's value without too much difficulty – but now a lender is unlikely to consider an application unless the potential buyer has a minimum 10% deposit, and 25% is by far the preferred amount.


Not surprisingly, analysis in 2009 by the Council for Mortgage Lenders revealed that four out of five of the younger first-time buyers (aged under 30) got help with their deposits from their parents.


But now even the "bank of mum and dad" is under pressure. Should parents spend their money on long-term care for their parents, save for retirement, pay for university tuition fees and accommodation for their offspring or put it aside for the children's mortgage deposits?

Unless you have really rich parents, or are in an highly paid job, you will probably have to save for decades.

A report by Oxford Economics suggested that if younger households were required to save for a 20% deposit, it would take them an average of 40 years to do so.


The average age of a first-time buyer who is not being helped by parents has already risen from 33 in October 2007 (when the credit crunch began) to 36 by April 2009.

And whereas the number of assisted first-time buyers has stayed virtually the same over the past three years (80,200 in 2006 compared to 80,700 in 2009), the unassisted have plummeted from 120,900 to just 20,200 over the same period.


"We are returning to the situation last seen in the 70s, when most people rented private or social housing, and were just waking up to the idea that they could buy," Wilcox said.


The problem is particularly acute for those in London and the south-east where property prices have risen highest and the minimum deposits needed to buy your first property are therefore the biggest – £29,700 in London compared to a nationwide average of £18,600.


The one thing that first time buyers pray for to help them achieve their goal will, ironically, probably make the situation even worse. As house prices fall – as they look set to do now – lenders will get even more concerned about negative equity and demand even bigger deposits.


Wilcox suggests several solutions: the return of an insurance contract called the mortgage indemnity guarantee (MIG), paid for by the buyer, which protects the lender should the buyer default on the mortgage; strengthened regulation to enable lenders to feel more confident about their lending decisions and therefore return to 95% and 100% mortgages; and more help to enable social tenant households to share in the equity growth of their homes.


But a major lender recently told me it was not confident insurers had sufficient financial strength, post credit crunch, to pay out claims on MIG if many people are made redundant and default on their mortgages. And if by helping social tenants Wilcox means extending the right to buy scheme, this can only further deplete the already insufficient housing stock owned by housing associations and local authorities.


The only idea that might work is persuading lenders to accept smaller deposits. The concept of returning to 100% mortgages might sound scary, but if the borrower's financial position is thoroughly checked out, surely this could work?


To achieve this borrowers may need to develop a much longer and fuller relationship with their lenders - perhaps even returning to the old process of having to save for a couple of years with a particular institution before it will lend to you. But if this results in you being able to afford the home you want to own and live in, is this such a bad thing?

http://www.guardian.co.uk/money/blog/2010/oct/12/mortgage-deposits-first-time-buyers


Only an idiot thinks falling house prices will help the lost generation of locked out FTB's.

shupufski_2

HAMISH_MCTAVISH wrote: »

Only an idiot thinks falling house prices will help the lost generation of locked out FTB's.

So, debate over then?

1984ReturnsForReal_2

So you finally admit house prices are falling & things aren't anything like you have been harping on about for the last 6 mths.



Congratulations you spanner.

mbga9pgf

HAMISH_MCTAVISH wrote: »

http://www.guardian.co.uk/money/blog/2010/oct/12/mortgage-deposits-first-time-buyers


Only an idiot thinks falling house prices will help the lost generation of locked out FTB's.

Fallin g prices would hinder FTBs in the short term. As soon as the market stabilised at a lower price level however, you can bet your ginger scottish @rse that FTBs would benefit significantly.

DaddyBear

Only an idiot believes that HPI will occur without FTBers.

Graham_Devon

Theres less wrong with requiring 10% deposits, than there is with giving out 100% (and plus) mortgages. IMHO anyway.

I realise some want to see 100% mortgages, but do think 90% allows you to show commitment, and you are less likely to go into something quite so eagerly if you have spent time saving up a large amount of money. So hopefully, that would lead to less problems down the line. (In my mind, it's far easier to enter an unafforable contract when you have put nothing in, and far easier to walk away).

With the aid of falling house prices, we will see saving this 10% become easier (don't like the word easier as it's not easy, but there we go).

It's not just debt availiability that's the issue here. It's high house prices. No matter which way you look at it.

All we need is house prices to align themselves with reasonable deposits and reasonable affordability multiples. No matter how much some protest that it's only the nasty banks stopping FTB's...it's not. When / if the alignment is allowed to happen, or simply happens, the housing market will stablise itself.

Hello. I'm an idiot.

HAMISH_MCTAVISH

Graham_Devon wrote: »

With the aid of falling house prices, we will see saving this 10% become easier (don't like the word easier as it's not easy, but there we go).
.

The one thing that first time buyers pray for to help them achieve their goal will, ironically, probably make the situation even worse.

Graham_Devon

HAMISH_MCTAVISH wrote: »

The one thing that first time buyers pray for to help them achieve their goal will, ironically, probably make the situation even worse.

(Love the use of the bigger font's and bold now, does this aid in getting your point across? Or are you just nudging me to go out and get that LED TV?)

Probably now?

Anyway, yes, you are correct. Will make the situation worse....

FOR A WHILE.

Once the dust settles, will make the situation ten times better:
- Lower deposits
- Easier deposit saving targets
- Lower mortgage payments
- Lower overall debt

I'll see if I can dig you out a pipe to smoke.

angrypirate

HAMISH_MCTAVISH wrote: »

The one thing that first time buyers pray for to help them achieve their goal will, ironically, probably make the situation even worse.

In the short term, possibly yes, but in the longer term they will be in a much better position.

shupufski_2

Let’s see...

25% of £160k is £40k

35% of £100k is £35k

Seems perfectly ok to me.

The flaw in your argument Hamish is that you fail to recognize the forces at work. Firstly, banks are not being "mean" to FTB's - they are simply protecting themselves from house price falls by insisting on a financial cushion. Secondly, the policy limits the FTB's to people who are more likely to be able to afford to pay their mortgage in future. Thirdly, the higher deposit means that the overall loan is lower reducing the impact of increased interest rates in future. And finally, the banks need to hedge new mortgage debt against the poor quality of their existing mortgages - i.e. they cannot afford to lend more because they already have enough loans on their books in or near negative equity.

If house prices were solid and the market functioned as you say then banks would not pursue this policy and nor would the BofE need to persist with its current insistence on keeping rates low.

doire_2

HAMISH_MCTAVISH wrote: »

http://www.guardian.co.uk/money/blog/2010/oct/12/mortgage-deposits-first-time-buyers


Only an idiot thinks falling house prices will help the lost generation of locked out FTB's.

As opposed to all those FTB locked out when prices were sky high. Did you complain then? Crocodile tears.