These remain confusing times for first-time buyers. On the one hand the Help to Buy scheme unveiled in the Budget seemingly represents an increased chance of realising one’s property ownership aspirations, but on the other the initiative is still being ironed out and developed.
The introduction date itself has brought its own perplexity – do potential homeowners stick to their guns and go it alone or hold fire until 2014 and take advantage of the state-backed scheme?
Leaving aside the Help to Buy scheme, first-time buyers were already receiving mixed messages.
A number of indices – chief among them findings from the Council of Mortgage Lenders and Halifax – were reporting new buyer levels being at a five-year high, but away from these headlines the fact remains that volumes are still modest by historical standards and that key indicators such as the average age of first-time buyers and the deposits required are continuing their migration northwards.
Our own research paints a slightly different picture to the positivity portrayed by a slight uptick in first-time buyer activity. The international index we compile to gauge sentiment across a number of European countries showed that a fifth of UK households could be classed as financially vulnerable, with consumers wracked with worries about soaring living costs, salary prospects, their amount of savings and employment security.
These very real worries are often overlooked when it comes to first-time buyers. For years the be-all and end-all seemed to be whether borrowers could afford monthly repayments and this has been replaced recently with an obsession about deposit sizes.
While both of these are undoubtedly important, first-time buyers still won’t take the step on to the property ladder while they are doubtful about their future.
Therein lies the danger of measures that ease one of the restrictions to property ownership while doing nothing to remedy the overall picture and, one could argue, the peril of artificially stimulating the property market at all.
It shouldn’t be forgotten that home ownership is a privilege and not a right and while giving a final leg-up to those who almost have the finances in place is justifiable, it is imperative that any such schemes are not extended to those who have no chance of repaying the mortgage.
Borrowers must always be required to part with some sort of deposit or there is no skin in the game for them in terms of keeping up with the repayments.
There is no one switch the government or any lenders can flick, but involving the private mortgage insurance sector to a greater extent would certainly go a long way to providing greater stability – not to mention reduced taxpayer liability – for all those involved.
If that were the case, lenders could feel more confident about lending at higher loan to value amounts and borrowers would have the products they need to access the property market. At a confusing time for first-time buyers, the adoption of a prudent lending framework incorporating private mortgage insurance could bring some much-needed clarity.
