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FirstBuy Direct: For and Against

by: Richard Sexton and Mark Blackwell
  • 24/03/2011
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FirstBuy Direct: For and Against
e.surv's Richard Sexton and xit2's Mark Blackwell debate the pros and cons of the government's newly-announced FirstBuy Direct scheme.

FOR

Richard Sexton is a director of e.surv chartered surveyors

Any help for first-time buyers is to be welcomed by the mortgage industry. First-time buyers, as the cliché goes, are the lifeblood of the business. We need as many of them to pile into property as soon as possible.

However, they continue to find it tricky to get on the housing ladder. e.surv research shows that those buying higher value homes are still receiving the most generous treatment from lenders, seeing the biggest expansion in LTV ratios since the recession started.

Those buying homes valued at over £500,000 have seen LTVs expand 14 percentage points since the market’s nadir and can still borrow almost as much as they could before the credit crunch.

But those at the bottom of the market are still seeing lenders offer mortgages at significantly tighter LTVs than before, despite some improvement since the post-Lehman Brothers freeze.

First-time buyers are therefore largely absent from the market at present and it’s no accident that housing transactions currently sit at around 550,000 every year, less than 50% of long-term average.

There are only so many homes cash rich investors are going to buy at the bottom end of the market and they aren’t going to earn intermediaries any money anyway. Uncorking the first-time buyer bottle will generate more transactions through the chain.

Furthermore, the Chancellor has played this very cleverly.

Not only is he putting £250m into the scheme, he’s also got the house building industry to chip in another £250m.

Rather than bleating that this isn’t enough money – in the current climate let’s not forget he hasn’t got a lot of room to manoeuvre – we should congratulate him on getting such a lot of bang from taxpayers’ buck. This scheme is helping lenders lower their exposure on high-risk borrowers buying high-risk properties – and it isn’t costing them a penny.

The industry is always asking for government support. Here it is.

Limiting this scheme to new build properties – where lenders are less keen to offer high LTVs – makes a lot of sense. It is focused to ensure it has maximum impact in the areas where it is most needed.

Lastly, I cannot see why it is such a bad thing that this proposal has evolved out of Labour’s Homebuy Direct scheme. That was a success and there’s no point trying to reinvent the wheel.

AGAINST

Mark Blackwell is the managing director of xit2

Let’s keep this first-time buyer news in perspective.

Without wanting to decry the importance of FirstBuy Direct to the 10,000 people it will help, the scheme is a drop in the ocean and barely begins to scratch the surface of the backlog of first-time buyers who are stuck in the confines of the rental market.

The devil is in the detail. In 2004/05 there were 600,000 first-time buyers. Even in 2010, with the first-time buyer market in a state of near-paralysis, that figure was still at 347,000.

A figure of 10,000 seems positively paltry in comparison, particularly when the CLG predicts that the number of households is growing by 223,000 per year. It certainly shouldn’t be put up in lights as one of the Budget’s flagship announcements given that it affects only a small proportion of buyers.

First-time buyers wanted to see a Budget that addressed inflation and the cost of renting, rather than a gesture to a miniscule proportion of the market.

We should not get too caught up in the political hyperbole. We know lenders are right when they describe the help the scheme provides as ‘modest’.

The £250m is for one year only and the cost burden is spread across the CLG and homebuilders. When compared with overall mortgage lending it becomes apparent just how meagre a figure this is.

According to the CML, there were £46bn of loans to first-time buyers in 2007 and, although in 2010 this figure dropped sharply to £24bn, it does put the government contribution in sharp relief.

It’s not even a new scheme.

Labour piloted a HomeBuy Direct Scheme, which was arguably more generous. FirstBuy Direct offers a loan of up to 20% of the value of the property, whereas the previous scheme offered up to 30%.

It is therefore stretching the truth to label FirstBuy as genuinely progressive. In fact, it is remarkably similar to what has come before.

The scheme is exclusive, in that it only helps out families who earn £60,000 or less. What of couples in London and other big cities, where the average salaries and property prices are higher?

The Chancellor talked of easing the burden on the ‘squeezed middle’, but in reality FirstBuy is a restrictive scheme that helps relatively few of the people who need it.

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