Labour wants Councils to be able to reserve properties solely for purchase by first-time buyers for up to two months, meaning that those properties would not – at least initially – be available to second steppers or buy-to-let investors.
To say this is a somewhat controversial proposal would be an understatement however Labour has said it believes this is one of the ways it can meet its target of doubling the number of first-timers over the next 10 years while it also wants to build 200,000 new homes every year by 2020.
Of course, the rather large elephant in the room here is the ability of first-time buyers to secure a mortgage which allows them to take advantage of such preferred treatment. We are all acutely aware of the ongoing problems for this borrower group namely their ability to save a large enough deposit and, increasingly, the much higher affordability criteria they need to meet in order for lenders to consider them credit-worthy enough. Add in the still relatively low supply of high LTV mortgages and we can see that putting incentives like the one announced above in place might still not be enough to allow the first-time buyer horse to drink the water.
Recent data does reflect a move towards a more favourable environment for first-time buyers but we are still someway short of the historical norms that these borrowers’ parents and grandparents enjoyed. For example, according to CML data, from the early 1980s through to the Credit Crunch and recent recession, the median first-time buyer mortgage LTV was around the 90% mark, indeed between 1984 and 1997 it very rarely strayed from 95%. This meant that, in a period where house prices were considerably lower, first-timers had the benefit of only needed to save a 5/10% deposit in order to make their purchase.
Consider this with the post-Crunch period when the statistics show that between 2009 and 2011 the median LTV for first-timers was between 75 and 80%, and in the following years to 2013, it settled at the 80% level. This year it appears that the level has risen again and we are now, according to the CML, around the 83/84% level. It’s an improvement fuelled particularly by the Help to Buy scheme and its impact on the overall market in terms of greater supply of high LTV product options however, given that house prices have risen steadily over that time period, it still means first-timers (on average) are having to find 17% deposits in order to purchase.
Many of those able to make this deposit level will be those lucky individuals who can count on family support in order to make this grade. This cash-rich minority mean there remains a majority who can only view getting on the housing ladder as wishful thinking. Our own recent research revealed that less than one in five (18%) aspiring first-time buyers can call on family support, while one in three said they have no chance of raising the deposit required.
Which is a rather depressing statistic for all concerned. And one that could get more depressing if the current, relatively low, level of high LTV mortgage options were curtailed further. Indeed, a mortgage drought plus rising prices would effectively put paid to any hopes potential first-time purchasers had of getting on the ladder. This is a very real possibility, particularly when the HTB2 scheme is due to end by 2017 and there has been no exit strategy outlined for it.
As we have stated many times, the provision of high LTV mortgages which are affordable to first-time buyers, is a long-term issue and one that requires a strategy which looks beyond the end of HTB2. If we can put in place a smooth transfer of risk from the State to the private insurance sector over the next two years then we can create a much more improved environment for first-time buyers. It would mean that the average required deposits of 17%-plus could begin to creep down, and we might be able to deliver a sustainable mortgage market where 10% once again becomes the norm. The opportunity is clearly there to create a much more first-time buyer friendly market but it will require action, and action soon.
