Getting On The Property Ladder

It is unlikely to be the first time that you have been made aware that there is a distinctive lack of affordable housing in the UK. This is contributing to the struggle that first time buyers are experiencing when trying to make their first move onto the property market. This is adding to the current problems first time buyer are already facing such as the increasing price of property which far out performs the increase in earnings and the increase in singles wanting to buy their first property.

So what is being done to help these First Time Buyers?
In early 2005 Deputy Prime Minister John Prescott launched a number of measures to attempt to give these first time buyers a realistic chance to buy their first home. The Government are searching to find low-cost housing that can be built and sold with a price tag of £60,000. In this search they developed a competition to builders who have been allowed to submit proposals to do this. However, there seems to still be concerns about this.

Non-standard construction

To make houses so cheap ideas of using off site manufacturing (pre-fabrication) or other types of non-standard construction. The first questions on this speculate around the quality of this construction type and how long it will last. The bigger question however, has to be if the mortgage lenders in the UK will be happy to lend on these types of houses. Mortgage lenders often have a list of construction types in which they will or will not lend on and accept as suitable security to lend against. Many lenders also have restrictions limits of non-standard construction types. One must consider the possibility of mortgage lenders placing construction restrictions for example of 70% LTV (Loan to Value) this will mean that FTB (first time Buyers) will have to provide a larger deposit in this example 30% of the property value. As FTB also struggle with affordability surely this would then in this example provided an even bigger strain for FTB's? So what other solutions are available?
Shared Ownership Schemes

The government are currently trying to extend this current scheme with the £60k housing project. Under this scheme tenants buy a stake between 50-75% of the house and pay rent on the remaining % to a housing association or social landlord who owns the other part. Consideration is now being given as to if this is actually workable; as if the rent is a substantial amount questions arise as to if it is not cheaper to buy the whole house in the first place.

100% Mortgages

These are particularly attractive to those FTB with no deposits. However, there are still fees to be taken into account for example: stamp duty, legal, conveyance and administration and mortgage product fees and the cost of actually moving house. Also these mortgages tend to carry higher rates of interest and therefore higher monthly repayments. Thus then working against the affordability issue. It is not only the FTB considering those monthly repayments but the lenders affordability calculations and criteria. Some lenders have considered this and begun to look at future earnings in this consideration. For example HSBC has been running Graduate mortgages for FTBs for quite some years. They currently offer up to 100% of the property value and lend to increased multiples of up to 4 x salary and discounted rates for the first 3 years. Other lenders offer similar deals however this only targets a small percentage of FTBs.

Smaller and more affordable properties

First Time Buyers are therefore now more limited in their purchasing power of their first property that they are having to look at properties of lower values due to the area, condition or size of the properties. We have therefore seen housing developers adding smaller properties to their development sites. These often include flats and the increasing popular apartments which are cheaper to buy as often use less materials and less or often no land.

Other Mortgage trends helping FTB

Guarantor mortgages this is where parents are placed on the mortgage to guarantee the repayments and so gives greater buying power to FTB struggling with affordability.
Joint Mortgages As there are now an increasing amount of single people living alone this puts further strain on first time buyers as they only have one income when assessing affordability to establish how much mortgage providers will lend. This also puts strains on single first time buyers when considering living costs such as utility bills and council tax. Therefore FTB's have taken to buying their first house with friends to get help get each other on the property ladder. Also, even strangers have taken to contacting each other through internet sites to come together and jointly buy property. However, you can imagine the problems with living with a stranger let alone when one decides they want to move on and sell the property. This scheme constantly lends itself to massive potential problems further down the line.

Please note that this article does not constitute financial advice under the Financial Services and Marketing Act 2000.

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