First time buyers are fundamental to the housing market
With so much turmoil in the housing market over recent years and the sky high prices of even starter homes, first time buyers have become an almost endangered species. With all political parties determined to help first time buyers financially through a variety of initiatives, perhaps there is much more to their position in the market than they are given credit for.
It is simple, really. Without first time buyers, there is no housing market. Not only do existing home owners find themselves unable to move up the ladder, the price of houses has to come down as there is less liquidity in the market as a whole. Properties sit on the market for years, desperately wanted buy people who can’t sell their own houses in order to move on. And yet the number of first time buyers in the market is lower than ever recorded in recent history. The numbers are even lower than the last housing crash in the early nineties. In late 2009, there were less than 200,000 mortgages approved to first time buyers, compared with the lowest point of the last crash in 1991, where there were more than 300,000 FTB mortgages approved1. Even in 2013, as the market started to become relatively buoyant, the numbers were still shy of 300,000.
A shortage of starter homes in decent areas has meant out of reach prices for those looking to buy anywhere other than the worst areas. Added to this the recent difficulties in the mortgage market, where first time buyers are finding it more difficult than ever to get finance, and we have a major crisis on our hands. Big deposits are another salient issue. If first time buyers are ploughing big sums of their bottom of the rung wages into rentals, there often isn’t much left over for that hefty wad needed for deposits, solicitors, disbursements and, of course, stamp duty.
So what is the solution to getting first time buyers back into the market en masse?
The first issue is mortgage availability. If finance were available, more FTB’s would be able to buy. The government can’t encourage irresponsible lending as that was the supposed cause of the financial crisis to start with, so without encouraging banks to lend more to more precarious prospect, how can finance be made available. First time buyer schemes are a hot topic in the run up to the general election and most of the main parties are promising significant help to first time buyers, from guaranteeing loans to offering shared equity deals. The current government already offers these schemes. There are also promises to encourage the building of more affordable housing, which in turn should ease the apparent shortage which plagues the South East and other affluent areas.
There is a second, less popular option too, and that is the traditional path. Mortgages are easier to come by to those who can show strong financial skills through a dedication to saving for a deposit at the expense of other luxuries. Saving is possible, even a little at a time, and it needn’t take a lifetime if clever budgeting and some sacrifices are made. Properties in cheaper areas may not be as desirable, but they are more easily obtainable and can enable young first time buyers to get a foot on the rung. And if FTBs are buying used, rather than new starter homes, it keeps the market flowing as second time buyers have a ready market when selling their homes.