First-time Buyer  

Stepping off the housing ladder?

Stepping off the housing ladder?

The world was a very different place 10 years ago. 

Back in 2009, we worried that young households would become locked out of home ownership as banks tightened their loan books in response to the global financial crisis.

With no housing equity to use as a down payment on their next home, first-time buyer numbers tumbled from more than 400,000 in 2006, to just 154,500 in the year to June 2009.

Among all the Brexit uncertainty and talk of the housing crisis, you might be forgiven for thinking that little had changed since then.

In fact, almost 360,000 households took their first steps onto the housing ladder in 2018-19, just 10 per cent fewer than their 2006 peak.

By contrast, mortgaged home mover numbers are still less than half of peak levels.

While there have been many changes to the mortgage market and housing policy in the past decade, three in particular have had a lopsided effect on first-time buyers and home movers: availability of mortgage finance, the changing pattern of house price growth, and Help-to-Buy.

Gearing up

Perhaps the biggest difference between first-time buyers and home movers is the amount of cash they can afford to put down as a deposit – home movers have generally accumulated some equity through years of home ownership.

It is therefore first-time buyers who have benefitted most from a resurgence in mortgage lending at high loan, low deposit ratios.

The proportion of mortgage lending with a deposit under 10 per cent rose from 1.5 per cent in 2009 to 5.3 per cent in the first quarter of 2019.

This low deposit lending is cheaper now too. In 2009, the average interest rate on a mortgage with a 10 per cent deposit was 6.1 per cent above the Bank of England base rate.

In 2019, that margin is just 1.5 per cent. It is therefore easier and cheaper for first-time buyers to access mortgage finance.

In recent months the market has even seen the return of 100 per cent mortgages, with no deposit payment at all.

Instead, many of these “springboard” loans require the borrowers’ parents to guarantee repayments, or to place 10 per cent of the property’s value in a savings account with the same bank.

For those lucky enough to have parents with money to spare, the ‘bank of mum and dad’ can be a significant helping hand onto the housing ladder.

We have also observed a rise in the average mortgage term, with households choosing to repay their loans over 29 years, on average, in 2018-19 – 8 per cent longer than in 2009.

Home movers are generally older and may not have the option of a longer mortgage term if repayments would continue past retirement age.

Changing patterns

In contrast, the changing pattern of house price growth has made it more difficult for existing homeowners to trade up the ladder further.