The age old debate over buying or renting is one that continues to rear its head. Recent figures suggest that first-time buyers could, on average, be £742 or 9% a year better off compared to those who rent. With current mortgage rates so attractive, this comes as little surprise to most people. But achieving the goal of homeownership goal is not a purely mathematical choice for many.
There are still lingering affordability issues to overcome and some hefty deposits to raise, especially for first-time buyers (FTBs) looking to purchase in and around London and the South East. Lifestyle choices also continue to their part as the younger generation have to carefully juggle outgoings and standards of living with the ability to save. Then there are the pros and cons of an interest rate environment which has helped generate some of the most attractive borrowing rates in years but again hampered people in the building of sufficient savings pots.
An anecdotal comment I saw on Twitter recently suggested that after tax and inflation, interest paid on savings accounts wasn’t enough to buy one sausage per week! I’m not sure where this particular comment originated from but it works to sum up the current frustration facing savers.
The issue of raising a sufficient deposit was recently highlighted in research published by housing charity Shelter. It suggested that aspiring first-time buyers in some parts of the country will have to save for more than a decade to raise a big enough deposit to afford a home, with single people and those who have started a family facing the longest path to homeownership.
Obvious challenges do lie ahead for potential homebuyers, but thankfully an increased emphasis on government initiatives and specific first-time buyer products continue to help growing numbers take their first steps onto the property ladder.
After a somewhat slow start, the Help-to-Buy mortgage guarantee scheme has certainly gathered momentum. With around 80% of loans taken out by first-time buyers, the scheme is said to have funded more than 23,000 purchases by this group over the first nine months of 2014 – or around 10% of the total. Further analysis of Help-to-Buy data by the Mortgage Advice Bureau, showed that the average age of people who bought a home in the last year through the scheme was 31, compared with the national average age of 37.
Another important element to take into account for first-time buyers are the stamp duty reforms announced by the Chancellor in his Autumn Statement late last year. It has been widely reported that the move away from the old “slab” system will benefit 98% of house buyers, with the vast majority of transactions valued up to £937,500 better off. In terms of official statistical data it remains to be seen exactly what effect these reforms will have, but they already appear to be boosting purchasing power and demand amongst borrowers, FTBs and beyond.
The first-time buyer product arena is also continuing to evolve to meet the changing needs of potential buyers. Barclays, for example, has just launched a stepped fixed rate mortgage which is specifically designed to help reduce the cost of monthly payments during the first year of the new mortgage and is ideally suited for FTBs as they adjust to their new financial responsibilities. Many other lenders have their own specific FTB-focused deals and with market conditions remaining strong there are certainly some attractive deals on offer and this is further enhanced by recent cuts across lenders’ Help-to-Buy deals.
This combination of factors has enabled lending to first-time buyers to reach its highest annual levels, in volume and value, since 2007. The latest Council of Mortgage Lenders analysis shows that in 2014 first-time buyers were advanced a total of 311,500 loans for house purchase, up 15% on 2013. The value of these loans (£45bn) was also reported to have increased by 24% on the previous year.
These represent healthy figures and, if continued to be backed by sensible and accountable government intervention combined with an environment of innovative and responsible lending, there is every reason to believe that greater numbers of FTBs will be fulfilling their property aspirations in the coming months.
