Most first-time buyer products rely on support from the Bank of Mum and Dad, benefiting only the privileged few
As house price inflation continues to rise and wage inflation struggles to keep pace, it is no surprise many young people are stuck in Generation Rent.
A recent report from Halifax has been making noise in the industry. It found that half of 18- to 34-year-olds did not believe homeownership was a realistic option for their generation, with 65 per cent of respondents saying they did not earn enough to save for a deposit. A quarter of that demographic were relying on receiving an inheritance to get on the property ladder.
The report also revealed that the average deposit for a first-time buyer home was now £32,321, rocketing to £100,445 in London.
What is more, our first-time buyers are borrowing for longer to keep their monthly payments manageable. In 2016, 27 per cent of all first-timers with a mortgage chose a 30- to 35-year term, up from 11 per cent a decade ago.
That said, it is not impossible for first-time buyers to make progress. Despite its rather gloomy report, Halifax also found earlier this year that the number of first-time buyers had reached a 10-year high, with 335,750 people getting a foot on the property ladder last year.
Part of this is due to an increase in the number of homeowners receiving financial help from a family member. Research we undertook last year found the Bank of Mum and Dad to be equivalent to a top 10 mortgage lender, with parents lending over £5bn to their offspring in 2016 in order to help them in this area. Great news for those lucky enough to have generous parents with spare funds. Not so good for everyone else.
On the demand side, government initiatives such as Help to Buy and shared-ownership schemes have also assisted first-time buyers in recent years. It is essential that potential buyers take advantage of these schemes because they have been specifically created to help first-timers make the jump from renting to homeownership.
Role of lenders
Looking to the future, lenders need to play their part in helping to rebalance the housing market in favour of younger buyers.
Many are already innovating and adapting their services to meet the demands of first-time buyers, which is to be welcomed. But they must continue to do so in order to keep up with the ever-changing requirements of this section of the market.
Some welcome recent initiatives include Family Building Society’s 95 per cent LTV family mortgage, Nationwide’s Family Deposit mortgages, Barclays’ Springboard mortgage and Aldermore’s ‘family guarantee’, which offers a 100 per cent LTV mortgage where parents or grandparents can guarantee the lending.
But you do not have to be a genius to spot the common theme: these products are all reliant on the first-time buyer being supported by the Bank of Mum and Dad in one form or another. They are of no use to those unable to depend on financial support from their parents, and thus are unlikely to lessen the gap between the haves and the have-nots.
Earlier this year, the Government’s highly anticipated housing white paper made a number of pledges to tackle our nation’s shortage of affordable homes. Put simply, until supply is realigned with demand, first-time buyers will be increasingly priced out of the market.
The Government has set itself an ambitious target of building one million affordable new homes by 2020. If this target is ever to be reached, we need to see some collaborative action to start delivering – and we need to see it now.
Procrastination will not solve our housing shortage. It is up to the Government, housebuilders and lenders to work together to make homeownership more realistic for the many, not just the privileged few.
Jeremy Duncombe is director of Legal & General Mortgage Club