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Rising prices mean a five per cent deposit is now the best chance at homeownership – Bamford

by: Patrick Bamford, business development director at AmTrust Mortgage & Credit
  • 06/09/2021
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Rising prices mean a five per cent deposit is now the best chance at homeownership – Bamford
It’s obvious by the initial reaction to the latest Nationwide House Price Index that an August increase was not anticipated by many commentators in the market.


However, if you make a comparison between Nationwide and Halifax or the Office for National Statistics (ONS) data, then you can see a significant difference in values, which even now makes the former look out of balance with the latter two. 

So, while both Halifax and ONS have average UK house price values well above £260,000, Nationwide’s most recent index for August – even with close to a £5,000 increase over the month – shows its average at just below £249,000. 

Which means that, while it was a significant monthly rise of 2.1 per cent, it is still some way behind those other two, and specifically the ONS data which covers all purchase transactions not just those which involved either Nationwide or Halifax. 


Prices and costs on the rise 

But what does this mean? Well, it means that the fundamentals in the UK housing market remain demand-heavy. Even with the government recently setting out its belief that it can deliver 120,000 new homes in the ‘affordable’ bracket over the next decade and reach 300,000 new homes per year in the mid-2020s, supply is still likely to lag behind. 

The cost of building those new homes is not coming down either.  

If anything, the price of construction is only going to rise, again based on shortages of timber, concrete, bricks and the like. That increased cost will be added to the house prices which will need to be paid by the consumer.  

All this and other societal demographics including household increases, means prices are only likely to continue moving in one direction, albeit not necessarily at the kind of pace we have seen over the last 12 months or so.  


Incomes not catching up 

Whether income levels can in anyway bridge some of that gap remains to be seen. Let’s be honest here, incomes have lagged behind house price increases for many, many years and the chances of us seeing double-digit wage hikes seem utterly fanciful. 

It leaves both potential first-time buyers and the lenders that service them with a quandary.  

This is in terms of finding the money for deposit, the ongoing incomes to meet mortgage payments, the funding to provide high loan to value (LTV) mortgages, and the appetite to keep on doing this for many decades to come. 

For each side of that equation – and the advisers in the middle advising them – this is going to be a long-term commitment.  

Perhaps longer than it has ever been, in terms of the length of terms for mortgage borrowers and lending commitments to ensuring high LTV mortgage choice does not simply wither on the vine when the government withdraws its guarantee scheme; which has undoubtedly acted as a catalyst for the market. 


Lenders must act 

The only way we can ensure that strong numbers of first-time buyers move into their homes is via an approach which recognises that a five per cent deposit might be the best that many would-be borrowers can hope for. It will still mean many thousands of pounds must be saved and borrowers may also require 30, 35 or 40-year terms at this level to make them affordable.  

But questions remain over whether lenders can match this up with product choice, they have the appetite for that risk and how the regulator looks at their requirements for capital to support lenders offering higher LTV products more widely.

The positive here is that prices continue to show no signs of dropping back anytime soon.  

That should give lenders a greater degree of confidence in the risk they are taking on and should also ensure that – for those first-timers who can buy – they will have an appreciating asset to work with in the future. 

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