First‐time buyers are back!
That’s the good news confirmed by a flurry of recent reports. Certainly, numbers of first‐time buyers in the market were higher in 2017 than in recent years, and they appear to have a newfound confidence.
Maybe the slower buy-to-let market has provided space for other buyers to emerge, or perhaps it is simply the case that pent‐up demand has finally reached the point where first‐time buyers had to act in greater numbers. There is, after all, only so long that you can share with your mum and dad.
Behind this positive news there is, however, a more complex reality underlying the increased activity. Firstly, UK Finance (the successor to the CML) has set out in its recent report that the age of the average first‐time buyer is now 30, and with an average income of £41,000.
While these income figures will, of course, be impacted by higher London wages, they do seem high. Certainly, from the perspective of a regional building society situated in the Black Country, I can confidently state that £41,000 is not an average salary for a 30‐year‐old. The first‐time buyers that are actively buying properties are therefore probably not typical of all of those that would like to buy for the first time.
IMLA has recently suggested that the average loan to value for first‐time buyers is circa 81 per cent. This further raises the suspicion that the average first‐time buyer in the market is not typical, and the size of this deposit rather points to an active involvement from the Bank of Mum and Dad.
How many first‐time buyers can raise a 19 per cent deposit from their own saving power, especially by the age of 30? Even with that claimed average £41,000 salary, this seems highly unlikely.
If at least some first‐time buyers are now buying, and if this keeps intermediaries and lenders busy enough to meet their sales targets, does it matter that other first‐time buyers are unable to purchase? I would argue that it does.
A recent English Housing Survey carried out by the Ministry of Housing, Communities and Local Government, outlined that a greater proportion of home‐owners are owning outright, with borrowing becoming a reducing trend.
In fact, over only a three‐year period, the percentage of households with a mortgage has fallen from 31 per cent to 28 per cent, caused by the home‐owning population becoming older, and their mortgages becoming more mature and then being repaid.
Although the recent increase in first‐time buyers may be sufficient to slow down or halt this trend, we need every first‐time buyer we can find because they form an essential cog in the market; we need high numbers to ensure that the market can continue to function normally in the years ahead. If first‐time buyer numbers remain too low, then the market will eventually grind to a halt. Before we reach that point, intermediaries and lenders alike will find that their businesses start to suffer.
So how do we find these additional first‐time buyers? Well, if we are to increase the pool, we will need to bring in those buyers with more modest incomes. We will also need to bring in borrowers whose families are unable to provide the deposit by handing over large gifts or loans.
Many parents do not have large dollops of unused cash lying around, and there is an issue of fairness at stake here. It shouldn’t be the case that only those parents who can do this are able to see their children buy.
Part of the answer is clearly more and better high LTV products, but our industry also needs to innovate.
At Tipton and Coseley, we have a scheme which provides 100 per cent lending with a collateral charge over the parent’s property, thereby allowing parents who are not cash‐rich to assist.
Other lenders have created options too which are designed to find creative ways to assist, and there are some notable examples of proactive lenders within the industry. Those of us who have moved beyond the standard approach are still relatively few in number, and I am sure that the industry can do more.
Not every young person wants to buy right now, and some of those who do probably shouldn’t. That still leaves large numbers of people who are unable to buy but who would have managed it only a generation ago. For at least some of these people, buying is the right thing to do and society owes it to them to make it happen. We all gain from creating a happier and more financially secure population.
Intermediaries who are on the front line, dealing with disappointed clients on a regular basis, are ideally placed to provide information/evidence to lenders which will lead to the next wave of innovation.
Next time you have such an example, speak to one or two of the more innovative lenders and give them the case study. Let’s see what we can generate during 2018.
It would be great to look back at 2018 first‐time buyer numbers and see a group that could not have bought utilising only the options available to them in 2017.
Richard Groom is head of mortgage sales at Tipton & Coseley Building Society