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Local FTB schemes can help us all

Initiatives such as those designed to help local people afford homes should be encouraged so that the vital first-time buyer sector can again fuel the housing market, says Roger Taylor

A Mortgages Direct survey shows the level of first-time buyer loans recently fell to its lowest level ever, accounting for just 23% of all mortgages in April compared with 47% for the previous month. And another survey, produced for the Yorkshire, reveals that many 16 to 40 year olds think that owning a home is a more important goal than getting a job, getting married or having children – although I’m not sure how they expect to be able to get a mortgage without an income.

Many are keen to buy homes but too few are achieving this goal. This won’t have come as a surprise to anyone working in the mortgage industry but steps must be taken to help the first-time buyer market flourish once more or the housing market as a whole will suffer.

An increasing number of first-time buyers are purchasing their properties with the help of their parents and other relatives. Indeed, many wouldn’t be able to step onto the property ladder without this help. The Council of Mortgage Lenders estimates that around half of first-time buyers aged under 30 are benefiting from financial assistance in this way.

Gifted deposits are becoming increasingly popular, with relatives choosing to provide the deposit or contribute towards it either as a long-term, interest-free loan, or simply by giving the money to their children as an early inheritance. In some cases, relatives remortgage their own properties to do this.

These developments are good for those people offered financial support, but what about the first-time buyers who aren’t?

One of the options available to potential first-time buyers is shared ownership. There are a number of shared ownership schemes available but the premise remains the same. The individual buys a percentage of the value of the property and pays a reduced rent on the balance to a registered social landlord or zone agent. In many cases the buyer is given the chance to increase the percentage of the property they own over time. This process is known as staircasing. For example, an individual could start by purchasing 25% of the property, increasing the percentage over the next few years so they eventually own 75% or in certain circumstances 100%.

In this way, people who wouldn’t otherwise be able to afford to buy a property can get a start. The number of shared ownership schemes is growing but the criteria for eligibility differ from scheme to scheme.

We’ve all heard stories about people who cannot afford to buy property in their home towns. Recently, developers have launched shared ownership schemes designed to provide affordable homes for local people. This is particularly important in rural and coastal areas where there is increasing demand for holiday homes. This is also a problem in university towns – ideal locations for buy-to-let investors and increasingly for parents wanting to buy second homes for their children to live in while studying.

The effect the trend toward second homes has on first-time buyers was highlighted last month in a report published by the Affordable Rural Housing Commission. Elinor Goodman, chair of the Commission, said that if we don’t act now we risk pricing the next generation out of the countryside. Speaking on the BBC’s Breakfast programme, she spoke about the negative impact not just on first-time buyers but also on the social mix in the countryside, the sense of community and the local economy.

The programme showed a development in Tideswell in the Peak District where 22 shared equity homes are being built for local people. In similar schemes, prospective buyers have to prove strong local connections and existing home owners wishing to move can only sell their homes to people who can show they have connections in the area. The Tideswell development isn’t a one-off in the Peak District. Several affordable housing schemes are underway as the National Park Authority campaigns hard for increased opportunities for local first-time buyers.

Shared ownership isn’t the only option. Since Mortgage Day, affordability has become a buzzword and is expected to play an increasingly important role in helping first-time buyers.

If a person can show they have successfully paid 600 in rent per month for the past few years, why shouldn’t they be able to commit to a mortgage with a monthly payment of up to the same amount?

Calculating an indivi-dual’s affordability level is a fairer and more efficient way of determining ability to repay than using income multiples that don’t take lifestyle, fixed outgoings and existing debt into account. Brokers might worry that affordability figures aren’t as quick and easy to process as simple calculations but most lenders now offer online affordability calculators that determine how much people can borrow in a few minutes. The move towards affordability calculations is good news for first-time buyers.

Some of the options presented to first-time buyers should come with an accompanying note of caution. For example, taking a 100% mortgage might seem like a good way for a person to buy their first home but without a deposit they will be at greater risk of negative equity should house prices fall.

Interest-only loans are another appealing option but individuals should be advised that it is necessary for them to put repayment vehicles in place.

Now that the bottom has fallen out of the pensions market, many people see property as the ideal long-term investment. But if the number of first-time buyers continues to slow, the effect will be felt across the housing market. It is essential that affordable housing developments such as shared ownership schemes and local buyer projects are encouraged and rolled out across the country so that first-time buyers can benefit no matter which town, city or village they call home.

Roger Taylor – director of sales and marketing, Preferred

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