With only around 200,000 First Time Buyers per annum, under half (400,000 to 500,000) of those recorded in more typical market conditions, it would seem that many hundreds of thousands of ‘wannabe' buyers have been prevented from buying.
A new and unique HSBC survey of non-homeowners confirms this:
- 78% of all non-home owners, who have never bought before, aspire to be homeowners.
- 86% of non homeowners 18 - 24 year olds aspire to be homeowners.
- 84% of non homeowners 25 - 34 year olds aspire to be homeowners.
The above statistics imply that over 90% of all UK households (homeowners and non homeowners) want to be homeowners, compared to 68% who have actually achieved it.
The HSBC survey also reveals:
- Only 19% of aspiring homeowners expect to purchase within the next 5 years.
- 45% do not expect to be able to purchase a home ever.
- Among the more optimistic younger age group (18 - 24 year olds) 22% expect to purchase within 5 years. A still sizeable 21% do not expect to ever be able to purchase.
The HSBC survey asked the aspiring homeowners what key reasons were holding them back from house purchase:
- 69% cited "raising the required deposit"
- 59% cited "insufficient income to support the mortgage."
- 27% said "concerns over unemployment"
- Only 12% said "concern over future falling house prices" was a factor holding back house purchases.
The current average FTB house price of £136,842 is 6.6 times a young single persons average earnings of £20,654. With lenders across the industry typically reluctant to lend more than 4 times income, this leaves an ‘affordability gap' of 2.6 times income, equivalent to £53,700 or 39% of the house price.
In order to afford a 90% Loan to Value mortgage, the maximum a standard lender will currently allow, a typical FTB home earnings would have to be £30,800, 49% higher than current average earnings for a single young adult.
Even then, a 10% deposit of £13,684 is equivalent to 42% of this higher annual income, a major impediment to home purchase without external financial assistance. It is thus not surprising that 84% of young FTBs are buying with assistance, mostly from parents. This compares to 38% in 2005.
Stuart Beattie, HSBC's head of mortgages, comments:
"Our study proves that the aspiration to be a homeowner continues to be exceptionally strong. Over 80% of young non-homeowners are aspiring to buy a home but are being prevented from doing so due to lack of affordable homes.
"The key to helping buyers back into the market is to help them obtain the cash deposit that responsible lenders require before granting a mortgage. To this end both Government and private sector interested parties need to come up with innovative schemes to help aspiring FTBs.
"HSBC is committed to helping FTBs and is currently working on a number of initiatives that will help the FTB cause"
Ways Forward - Help for FTBs:
- Government Supported Shared Equity schemes:
This year's March Budget committed £250m to a new shared equity scheme aimed at helping 10,000 FTBs on to the "New Build" housing ladder.
"Such Government supported low cost home ownership initiatives have been helping around 22,000 house buyers in each of the last three years, significantly less that the 300,000 FTB shortfall in each of those years.
"In order to assist 300,000 FTBs on to the housing ladder, on the same basis, the Government would have to commit to £ 7.5billion (a 30 fold increase!)
- Government Stamp Duty initiative: Does not address the affordability issue for FTBs
In the March 2010 Budget Alistair Darling abolished stamp duty for all house purchases for FTBs up to £250,000 for a period of 2 years. Despite no stamp duty benefiting 95% of FTBs, and saving up to £2,500 per purchase, it has done little to boost FTB numbers who continue to be constrained by high deposit requirements and limited mortgage multiples.
If stamp duty is re introduced, as planned in March 2012, it is likely to distort the market, with buyers rushing to beat the deadline. A permanent and more revenue neutral change to this unpopular tax is to apply it to sales not purchases. Instead of FTBs paying stamp duty, "last time sellers" will pay for it who will be more able to afford the tax out of their property's equity.
- More help to deliver ‘Empty Houses' back into the market for the benefit of FTBs: A better priority for government
Over 300,000 homes have been vacant for more than six months in this country. The Government is supporting getting these empty homes back into circulation, with a £100m fund of grants.
If just half of these empty homes are returned to use, it would provide nearly a years worth of the Government's housing growth target, and could, with suitable ‘Right-to-Buy' type incentives significantly help FTBs as well.
- Lenders lending 95% Loan to Value (LTV) - Could return if lenders and borrowers protected!
Lenders cannot and should not relax their lending criteria without additional safeguards. A return to the irresponsible lending prior to the credit crunch would not in any case be allowed by the regulator.
However, high 95% LTV lending may be deemed prudent and safe if lenders can obtain insurance to protect themselves, and also the borrower from the additional risks. Some private pilot schemes have been successfully launched on this basis in the context of New Build.
Their potential larger scale success is dependant on (a) regulators (and credit rating agencies) accepting the reduced risks and (b) sufficient app
