With house prices at very attractive levels compared to valuation and extremely low interest rates you would think that this would be an ideal time for first time buyers to enter into the market. However, due to constrictions with lending and a degree of economic uncertainty there has been a dearth of first time buyers over the last few months.
A report from Right Move indicated that first time buyer activity was 12% less than this time last year. Given the chain nature of the housing market no matter what you are selling, be it a traditional first time buyer property or a £500,000 mansion, everyone involved in the housing market is affected by the lack of first time buyers. I would also suggest that unless a degree of stability and security can be brought into the housing market then banks which have securitised most of their debts against these housing assets will not feel confident. If the banks aren’t confident then they will not feel comfortable increasing their lending, and without increasing lending the economy will not be stabilised, thus a potentially damaging circle of events occurs.
I have already asked in this blog for the Government to pay more attention to the housing market and in particular first time buyers – and I repeat this plea. It is my view that the Government could enter into a very simple agreement with the majority of lenders, asking them to lend 95% of loan to value with the Government guaranteeing 5% of the loan for first time buyers. The definition of first time buyer has now been brought into legislation via the emergency Budget. Given that it is a guarantee then it only becomes a cost to the Government should the loan go bad. The Government could limit this pot to a certain level and this extra expenditure could be funded from very simple changes to Capital Gains Tax dealing with particular people buying and selling non main residences within say a seven year period.
More action is required by the Government and first time buyers urgently need more help. This would stabilise the housing market and improve the general economy.
P.S. Since this article was written I was pleased to see that a lender has recently introduced a 95% product for first time buyers at a reasonable rate which required a guarantee from parents or grandparents. Whilst this does not go as far as a Government backed scheme it is certainly a welcome step in the right direction.
- The number of first-time buyers has fallen sharply (money.marksandspencer.com)