Richard Coulson, chief executive, Home of Choice
They say what goes around comes around, and following the fashion for all things retro I’ve been transported back to the days of Blondie, Dexys Midnight Runners and Abba with the latest tactics being mooted to boost the flagging first-time buyer market.
Both Right to Buy and shared equity mortgages – the solutions offered by the Conservatives and Labour to the continuing first-time buyer crisis – have their roots firmly in the past. So will a rehashed and reinvigorated Right to Buy policy rekindle the glory years of the 1980s and have the impact Tory leader David Cameron says it will? And can shared equity mortgages shake off the memory of the scandals of the 1990s to support borrowers who don’t have all the funds they need to buy properties from their own resources?
Another way of asking these questions is to say – if the property market started with a blank piece of paper and had no legacy systems like us when we launched Home of Choice, would it look the way it does today?
I’m afraid we’ll never know the answer to that question as the market is so entrenched with its legacy systems that individual schemes and initiatives are only able to tinker at the edges.
But I like to remain positive so my view is to wholeheartedly support schemes designed to cut first-time buyers some slack because eventually there will be enough of them to make a big difference to our market.
The first step is the steepest
According to statistics from the Council of Mortgage Lenders for June 2006 the typical first-time buyer is aged 29, earns 33,000, pays a 10% deposit and borrows more than 3 x their annual salary – around 110,000.
Although the CML reported a 14% rise in the number of first-time buyers – increasing from 34,800 in May to 39,500 in June – the forecast for first-timers remains difficult.
The lack of housing supply is an important factor in maintaining high house prices – doubling already this century, according to Nationwide.
It is my feeling that first-time buyers are competing not only with other first-time buyers but also separating couples who are re-entering the property market a few rungs down the ladder, plus investors. Developers are already planning to build smaller homes to cope with this increasing demand.
Buy-to-let investors bear much of the blame for pricing first-time buyers out of the market but that oversimplifies the question. Property as an asset class has proved to be an excellent source of investment for many, with capital growth being used to supplement disappointing pension investments.
Confidence in the economic and employment situation has fallen and one in three people are pessimistic about the number of jobs that will be available in six months’ time.
Students now have debts to repay before they can consider property investment but salaries don’t necessarily keep pace with house prices. We are seeing energy prices on the up, moderate earnings growth and even speculation that fresh food prices may rise because of the dry summer. And all this is before potential buyers begin to consider the charges associated with the house purchase such as Stamp Duty, removal costs, furnishing costs, council charges and the mortgage and legal fees.
As lenders, developers and other third parties including the government seek to make it easier for first-time buyers to get onto the property ladder, professional brokers must safeguard their own interests with a comprehensive fact-find to demonstrate the robustness and detail of the advice given.
After all, when the normal maximum loan, based on affordability or income multiples, does not allow borrowers to reach for their first property in certain areas you have to ask the question – is this responsible lending?
Tory idea fraught with pitfalls
Tory leader David Cameron says an expanded Right to Buy scheme will allow millions more council tenants to purchase their homes. This proposal is a doppelganger of one of the most successful policies of Margaret Thatcher’s government, which legislated to compel councils to sell to tenants who wanted to own homes.
Will it work second time round? The devil is in the detail but in this case there is no detail yet. But experts agree Right to Buy or rent-to-own is fraught with pitfalls.
Homeless charity Shelter reports that an expansion on the Right to Buy scheme may help a lucky few. But in tackling a contracting first-time buyer market, it says the scheme will deepen the crisis by causing a chronic shortage of local authority properties.
Two-thirds of families living in social housing are on benefits and taxpayers are already protesting that using benefit to pay mortgages is the equivalent of giving away council homes for free.
The first step is the steepest
Labour plan faces challengesGovernment-backed shared ownership schemes have helped many borrowers to buy. Last year Labour announced plans to expand shared ownership and encouraged lenders to support its scheme which offers applicants a 75% mortgage, a 12.5% equity loan from the same lender and a 12.5% equity loan from the government. Those eligible will be key workers and social tenants as well as people on the housing register and those identified as priorities by housing boards.
The scheme allows people to buy a stake in a property and pay rent on the portion that is not owned. Borrowers can increase their stake in the property over time and eventually own it outright.
The proposals were supported by just a couple of big mortgage players and a launch was expected this April.
More than 60% of key workers can’t afford to buy where they work and the barriers that hinder would-be first-timers also prevent many people moving to larger homes.
Despite the challenges – not least managing the interdependence between the three legal charges on the property of borrower, government and lender – Open Market Homebuy loans are now available giving up to 40,000 people the chance to buy a home.