Tony Levene is a renowned financial journalist, who has previously been a columnist for Guardian Money. He has written several books, including 'Investing for Dummies' and won the ABI Lifetime Achievement award and the Headline Money award.
The housing market needs first time buyers – people on the first rung of the property ladder – if owner occupation is to continue as the dominant mode of home ownership. The alternative is a system largely dependent on renting.
But crossing that first threshold with your own keys is tougher than it was. Property prices in some areas have outpaced earnings; and while interest rates are generally lower than at any time in living memory, loans are harder to come by as lenders retrench, offering mortgages only to the most creditworthy. Even those in well-paid and secure employment do not get the welcome they once did at their local bank or building society – unless they can come up with a hefty deposit first. In cash terms, that could be anything from £15,000 to £50,000 for a typical first time purchase.
Although there are no precise statistics, the typical first timer may now be around four years older than a decade ago. Just how old that is depends, as do so many “statistics” in the housing market, on variables such as location, property types (flat, house, mansion) and wages in an area compared to how much a home costs.
A report this summer from The Halifax said the average first-time homebuyer in high cost London is now 32, four years older than the average across lower housing cost northern England, Wales and Scotland.
The typical first timer may now be around four years older than a decade ago.
In Selby Yorkshire, the average, according to the Halifax, is 25 – here a typical property costs £114,113 or 2.9 times the average local salary, whereas a first time buyer in Harrow, north west London, would typically be 34, need £262,634 and pay an average 6.5 times their income. That first rung would be even more difficult without that great – and barely heard of a decade ago – institution, the
Bank of Mum'n'Dad.
They house (and often feed) them for longer. Many are “boomerang kids” who return to the parental home after a few years away at university – the hope is they use this rent-free period to save up for a deposit. And the bigger the deposit, the more likely lenders are to grant a mortgage and the lower the interest rate will be.
A second group of mothers and fathers lends the deposit – either interest free or with an informal arrangement pitched higher than the parent would get from a bank but lower than their child would have to pay on a loan.
And a third set passes on inheritances they have recently received from the estates of their own parents. This so-called generation skipping can be via a legal scheme known as a “deed of variation”, which can help with inheritance tax planning. Any extra cash can also help first time buyers skip the “starter home”. The two bedroom flat, for instance, is often better value than the one bedroom dwelling – and they will be less likely to need to move again if there's an addition to the household (or they can rent out the spare room in the meantime – under the Rent-a-Room scheme, up to £4,250 a year from
lodgers is tax-free).
It's easier, anyway, for a couple with two incomes to get a mortgage than for a single person.
There are a number of initiatives that seek to help first time buyers. Shared equity involves a partnership between buyer and, usually, a housing association where the purchaser buys a percentage of the property and pays rent on the rest.
Many government and new housing developer led plans such as First Buy Shared Equity, New Build Home Buy, and the New Buy Mortgage Indemnity Scheme are only applicable to newly built premises, limiting both location and choice of property type.
These schemes can be complex, sometimes only applicable in some areas or for some occupational groups, and often subject to change with new initiatives replacing old.
They all need careful calculations and substantial legal advice. For although buying offers security of ownership, and tends to be cheaper than renting thanks to current low mortgage costs, making a first time buyer mistake could be very costly.
Terms, conditions, limitations, exclusions and acceptance criteria apply.
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