Britain’s housing boom may be a blessing for homeowners, but with prices trebling in a decade, first-time buyers are being forced to dream up increasingly complex arrangements to get a foot on the property ladder.
Would-be buyers are asking parents for financial help, buying with friends or agreeing to buy just a share in their future home. And mortgage providers have responded — by branching away from traditional loans and lending criteria.
In early 1996, the average price of a British home was £51 367 ($96 860, R689 138), according to building society Nationwide. Last month, that price was £167 733 ($317 212, R4 254 436)
London, by some estimates, has prices that are double the UK average, with the supply of smaller homes squeezed as buy-to-let investors snap up one- or two-bedroom properties, while rising costs make it tougher for existing owners to move up the ladder.
Fuelled by low interest rates, a robust economy and a dearth in housing stock but unaccompanied by a comparable rise in wages, the boom has left new buyers struggling.
”More and more people are coming to us with complex proposals as to how they might be able to get a mortgage,” said Joe Rabbitt, head of intermediary development at Nationwide.
”People are finding it harder to take the first steps in the property ladder. As house prices increase, we’re finding that so does the average age of the first-time buyer — we’re finding more groups are coming to us having to buy with friends, or that buyers are using their parents as guarantors.”
The building society allows up to four individuals buying together to take out one of its mortgages.
First-time buyers have also become a political issue, in a country where home ownership is close to voters’ hearts.
Britain’s Labour government is set to bring in a new low-cost scheme in October, allowing borrowers to combine a mortgage and a loan linked to the value of the property.
The opposition Conservative party — which brought the ”right to buy” to Britons living in social housing in the 1980s — is calling for a ”revolution”, with proposals to allow social housing tenants to turn their rents into mortgage payments.
Buying with friends
Young aspiring homeowners, many still with student debt, say they need help. First-time buyers, who made up half the market a decade ago, now represent just a third of all transactions.
Sarah Meehan, who works for an education charity, has spent years trying to buy a place. After she was out-bid on a studio flat in London, she decided to apply for an increasingly popular option — shared ownership with a housing association.
”If you share with someone and get a two-bedroom place, mortgage payments are reduced considerably, but I was apprehensive about doing that,” the 36-year-old said.
”With shared ownership, it’s the same kind of idea, because I can buy something that is beyond what I would have been able to buy for myself. The studio flat I bid on was £134 000, my absolute limit. With shared ownership, I can consider properties beyond the £200 000 mark.”
Many shared ownership properties are earmarked for key public sector workers — nurses, teachers, policemen — who find themselves priced out of 65% of British towns.
According to building society Halifax, the average London house costs over 11 times the annual wage of ambulance staff and 9,5 times a nurse’s salary — more than double the three to four times ratios considered by most lenders.
Anthony Partington, a 27-year-old teacher, said it would be impossible for him to buy in the university city of Cambridge, where he works — one of the most expensive areas in Britain.
”I would have to either go with one of the key worker schemes, buy to then let some rooms or buy with friends,” he said. ”I’d definitely have to do something like that, rather than just a straight mortgage — if it was based upon three times my salary, I’d be able to buy a shed.”
‘Nothing wrong with renting’
With housing supply unlikely to meet demand in the near future, banks are keen to find ways to ease the pain as well.
Nationwide, Yorkshire Building Society, bank HBOS and Morgan Stanley’s Advantage, for example, will participate in the government’s ”Open Market HomeBuy” to be launched in October. Aimed at key public sector workers and first-timers, buyers will take out a regular mortgage along with a loan on which no interest will be charged for five years.
Lenders have expanded their calculations of how much they will lend to take better account of rising wages, particularly for young professionals, with some offering mortgages based on how much buyers already pay in rent, not how much they earn.
Others allow several people to borrow together or offer parents deals under which they take on part of the liability.
In 1995, according to the Council of Mortgage Lenders, 10% of first-time buyers under 30 needed money above their savings to fund a deposit. By 2005, the portion was 50%.
But some experts advise first-time buyers to wait.
”Shared equity, shared ownership are all viable opportunities, but there is nothing wrong with renting — it gives you flexibility, it’s cheaper than buying and you can save up money,” said Richard Donnell at consultancy Hometrack, adding many of those targeted in the government scheme could afford a regular mortgage if they were to wait a couple of years.
”We’re going to end up having a big debate on where is government assistance needed most. At the end of the day, the housing market is so big, there are so many people priced out of the market, that you could spend billions of pounds, hundreds of billions of pounds to help people get on the ladder.” – Reuters