First time buyers: what is the way forward?

31st March 2011

According to the Council of Mortgage Lenders (CML) there are currently only around 200,000 first-timer buyers getting on the ladder each year – less than half the number recorded in more typical market conditions. So it would seem that many hundreds of thousands of potential buyers have been prevented from buying.  

The HSBC survey looked into the reasons for this. It found that 78% of all non-home owners, who have never bought before, aspire to be homeowners. The main factors holding people back from becoming homeowners were to do with money.

69% cited problems raising the required deposit as the key reason holding them back from home ownership. 59% said they had insufficient income to cover the mortgage and 27% had concerns over unemployment. Only 12% said "concern over future falling house prices" was a factor holding back house purchases.

The HSBC survey also found that only 19% of aspiring homeowners expect to purchase within the next five years and 45% don't expect to ever own a home.

Among the more optimistic younger age group (18 to 24-years-old), 22% expect to purchase within five years but a still sizeable 21% do not expect to ever be able to purchase. 

The current average first-time buyer house price of £136,842 is 6.6 times a young single person's average earnings of £20,654. With lenders across the industry typically reluctant to lend more than four 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 (LTV) mortgage, the maximum a standard lender will currently allow, a typical first-time buyer 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.  So it is not surprising that 84% of young first-time buyers are buying with assistance, mostly from their parents – this compares to 38% in 2005.

Stuart Beattie, HSBC's head of mortgages, says: "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 first-time buyers.  HSBC is committed to helping first-time buyers and is currently working on a number of initiatives that will help the first-time buyer cause."




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