Are first-time buyer figures hiding the truth?

Once again we have been bombarded with statistics on first-time buying in recent weeks, and while numbers are said to have increased, affordability remains a serious concern for those who don’t have substantial savings or financial support from family to rely on. Rebekah Commane considers the issues facing FTBs

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Apparently, the number of UK residents purchasing a home for the first time has risen by almost half in the last year and has reached levels not seen since before the economic crash.

Figures from LSL Property services found that mortgages for first-time buyers (FTBs) are becoming more affordable, with average rates falling from 4.92 per cent to 3.99 per cent in the last year.

Concurrently, the survey found that house prices are rising rapidly versus income with the average purchase price for a first-time buyer, up 8 per cent in the last year to £146,726 in July while the average deposit now equal to 83.1 per cent of annual income; an increase of 5 per cent from a year ago.

How, therefore, can it be claimed that home-buying has become more affordable for FTBs?

Scraping together close to a full year’s pay for a deposit would be a hard-task for anyone, even without having to fork out on ever-increasing rents each month, particularly in London and the surrounding areas where, it seems, there is no ceiling on rental prices.

Evidently, figures reflecting an increase in the number of first-time buyers in the UK coincides with the rise in those getting help from the ‘bank of mum and dad’.

A recent report from Legal and General Mortgage Club found that 45 per cent of respondents to a survey of FTBs had help from their parents or relatives in purchasing their first home and that 40 per cent would have been unable to do so without that assistance.

Of course, if you can borrow money towards a mortgage in this way it makes good financial sense as only 5 per cent of those who take out loans from the ‘bank of mum and dad’ are required to pay any interest back. Meanwhile, 21 per cent of recipients were gifted the money.

However, many first time buyers don’t have the option to borrow from family.

There are, of course, affordable housing schemes, such as shared ownership (more information on pages 18 to 21) but the level of impact this option is having on those with no help in purchasing a home is difficult to assess; this is because, while deposits are considerably smaller for mortgages through government schemes, the down-payment may still be gifted by parents.

The government schemes are full of potential but, seemingly, also full of glitches that need to be ironed out if they are to make any tangible impact on those struggling to get on the housing ladder.

For a start, more transparency is needed on the various schemes, how you can qualify and how the process works.

In further statistics revealed in the past month we have also been told that the number of young people buying abroad, where houses are more affordable, has increased by a quarter in three years.

This once again calls in to question the claim that housing is becoming more affordable for first-time buyers and the impact that government schemes are actually having.

A report from foreign exchange provider Moneycorp revealed that the number of under 30’s opting to buy a home abroad jumped fourfold between 2011 and 2012, while the number of want-to-be homeowners in their 30’s who chose to buy abroad within the last year was up by a quarter.

While it is certainly true that mortgages are more affordable than this time last year, with rates continuing to fall, prices are still far too high for a very large portion of would-be first-time buyers.

Of course the housing stock shortage is another issue for anyone looking to buy, which is a significant contributor to inflated prices and a problem that is unlikely to be resolved any time soon; if anything, it will get worse if supply is not increased.

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It’s hard to imagine what the housing market has in store for the next generation rent.