Will property ownership ultimately become the preserve of a wealthier minority?
Tackling this week’s Market Watch issue – and disagreeing – are:
Charles Haresnape, managing director at Aldermore Residential Mortgages
Jon Round, chief executive of First Complete
Joe Coward, of the independent think tank Resolution Foundation
Charles Haresnape, managing director at Aldermore Residential Mortgages
There is no doubt there is more that lenders can do to help first-time buyers and we have recently seen a few new developments, such as the launch of Aldermore’s Family Guarantee Mortgage.
However, this deal will only help those who are fortunate enough to have parents or grandparents who are able to provide a guarantee – it will not be the answer for everyone.
We have seen LTVs start to edge upwards and a number of lenders pledge to set aside more funding to help first-time buyers. It does seem as if it is new lenders and regional building societies that are leading the way with first-time buyers.
Yet, there is little doubt that these developments will favour better-off applicants who are most able to afford a mortgage.
Unfortunately for lower-income families, the situation will get worse before it gets better.
On 24 March, the Stamp Duty tax exemption for first-time buyers comes to an end, which means that anyone buying a property between £125,000 and £250,000 will have to pay tax of 1%.
This additional financial burden will only add to the difficulties of saving for a deposit.
The government’s HomeBuy schemes have been designed for households that earn £60,000 or less but, yet again, they won’t don’t provide a solution for everyone.
The harsh truth, whether we like it or not, is that there will be an increasing number of people for whom homeownership will be a dream beyond their reach.
Nevertheless, this does not mean that their only option is homelessness. The stock of private rented property is growing and those who rent a council house will have the option to buy in the future under the Right to Buy scheme.
I have no doubt that the UK will move towards a more European model in which renting is far more commonplace.
Equality, I’m afraid, does not yet exist in the UK housing market.
Jon Round, chief executive of First Complete
While LTVs remain low, it is true that those with little deposit may struggle to get onto the housing ladder without the support of family to help them.
However, stable house prices and low interest rates do mean that we are no longer in a situation where an aspiring first-time buyer would save a deposit only to discover that house prices were then significantly higher and they needed more money.
Now, at least, someone can save for a deposit on a potential new home and it is likely that it will still be that price when they come to buy it.
Similarly, interest rates are at record low levels, which is making mortgage finance more affordable.
While it is true that it is harder to get a mortgage now than it was in 2007, last year saw a welcome return of some higher LTVs, some up to 95%. The key here is usually that the borrowers have stable jobs and a clean credit history.
There is no denying that it is challenging for people to raise the money to get on the housing ladder for the first time, but this is not a static situation.
There are a number of smaller lenders coming into the market with quite innovative propositions. There are some interesting parental guarantee mortgages and there are shared ownership initiatives with house builders.
The market and the government are very aware of the issues facing first-time buyers, so I believe we will see a number of new measures introduced over the next few years.
Some will work well and some less well, but the mortgage market is one of innovation and this won’t stand still, so I don’t believe that property ownership will ever become the preserve of the wealthy alone.
Joe Coward, of the independent think tank Resolution Foundation
One of the most striking findings of our Squeezed Britain report, which set out the economic position of the squeezed middle in forensic detail, was that home ownership is now out of reach for many people on low to middle incomes (LMI).
On the basis of current incomes, house prices and the loan-to-value ratios now available, it would take a first-time buyer on a low to middle income 22 years to save for a deposit compared to three to five years in the 1980s and 1990s.
With low to middle income households historically heavily reliant on high LTV mortgages – one in five took out a 100% mortgage in 2005-06 – these trends are unlikely to change anytime soon.
As social housing is now predominantly targeted at the most vulnerable in society (and rightly so), this means that the private rental sector is far more than a stop-gap for many LMI households.
Indeed, the proportion of LMI households aged under 35 renting privately has more than tripled, from 14% in the late 1980s to 47% now, with many raising families in rental accommodation.
In just the last six years the number of LMIs under 35 who own their own home has nosedived from 51% to 34%.
This all suggests a permanent decline in home ownership with any significant reversal looking unlikely.
People on low to middle incomes, whilst not shut out of the housing market completely, look set to continue to find it very difficult to buy property, and consequently will live in rental accommodation for much longer.
In some sense, this would move the UK closer to countries like the US, the Netherlands and Germany, where long-term renting is already far more common.
However, the UK’s rental market remains a cottage industry, with more than one tenant in four not considering it to be “good tenure”.
Therefore, we need to develop new ways of ensuring rental properties built at scale, designed for efficiency, provide longer-term security for tenants.
