First-time buyers are shut out of the housing market

There has been much talk recently of the rise in the number of mortgage products available to those with small deposits. But the existence of these products is beginning to look rather more theoretical than actual.

If they were really being granted to borrowers, rather than just trumpeted in the press, you might expect to see the number of first time buyers entering the market rising. But you aren’t seeing anything of the sort. Instead, according to the latest numbers out from the Council of Mortgage Lenders, the number of first time buyers was 17% lower in April than in March: they now make up the lowest proportion of buyers since 2007 (the peak of the bubble, and the time when first time buyers were least likely to be able to afford a house of any kind). The typical first time buyer is still putting down a 25% deposit.

Easter often causes disruption to the market, so we have to take that into account. But even so, it’s hard to take much good news from these numbers – from the house price bull perspective anyway.

We’ve written here before that we expect rising supply to keep house prices down from here on and that does appear to be happening already – partly due to the end of Hips, partly thanks to fears over CGT, and partly just because there comes a point when people waiting to sell just don’t want to wait any more.

The various indices are sending – as usual – mixed messages about prices, with Acadametrics showing a 0.2% fall in house prices last month and the Land Registry coming up with a 0.2% rise.

But look at the supply numbers and you can begin to get a sense of what might happen next: in April, says property expert Henry Pryor, the number of sale instructions rose by 78% over the previous year (121,000 vs 68,000). And while sales have also risen, they have not done so at the same rate: the latest figures suggest they are up by 24%, says Pryor.

One more thing we might like to consider as the emergency budget – and the day of reckoning for the public sector – draws closer is this: according to a report in the Guardian, 25% of the UK’s homeowners are public sector workers. How many of them have overstretched themselves on the basis that their salaries and benefits can only ever rise; that their jobs are jobs for life; and that the gold plate on their pensions will never tarnish? And how many of them will find themselves having to move to look for private sector work over the next few years? I guess we’ll soon find out.

  • The Masked Tulip

    I am almost lost for words… I looked at a dozen houses today which, in late 2006 to 2007, were sold for 250K – LR figures. Today, all of them are on the market with an asking price of 399K.

    The difference in asking price is simply ludicrous!

    I pointed out to the EAs today what the LR figures were for these houses when they last sold and they basically looked at me as if I was stupid for even challenging the asking prices. It is like a disease or some kind of brain-washing… or Invasion of the Body Snatchers.

    Where is this – West London? Leafy Surrey? No, it is public sector dominated Swansea.

  • JAW

    First-time house buyers were doomed to near extinction the moment Tony Blair announced they had to start paying for their university education. With 50% of the younger population starting working life with £30,000 debt it was obvious that an exponential negative effect on the economy would occur over the following decades, with housing non-affordability the most prominent and painful.

    Some solutions are: make Open University Degrees free of charge. As in France, offer low cost building plots to local young people in every UK parish and town. Set up free self-build courses. Building materials and labour costs change little in boom and bust periods which indicates it is the price of the land which changes giving speculators grotesque profits. Government control of building land values could reduce the price of the average house by £50,000, opening up affordability.

  • Howard

    Hope to see the new government will move more central gov’t offices outside the central London, to ease the residential market there.

    I don’t understand why HMRC staff can’t work in Watford or Ilford. Why TFL office need to me on the Shard where agreed rent was £38/sqf?
    Office in Watford costs £12sqf only. May be the TFL could improve the services reliability as well when they travel more!

  • Nick

    “I don’t understand why HMRC staff can’t work in Watford or Ilford. Why TFL office need to me on the Shard where agreed rent was £38/sqf?”

    The advantage of the Shard is that it is central and easy to commute to from Kent or Surrey in the south or Essex and Suffolk in the north and east.

    But, in general, I agree it does not make sense to house government bureaucracies in places charging bankers’ rents.

  • Bashful

    In Croydon, there is a 25 storey towerblock (Altitude 25), built over the last couple of years. It is five minutes from East Croydon station. Being a borough of London it is a hugely populated place so there is no end of demand for homes to own. However, this huge block is mostly empty because the prices are around 200k for a 1 bed flat.

    From what I can see these have been empty for ages. So, how are the owners or developers of the block affording the build cost/debts if they haven’t sold any flats? Are the banks hiding these losses and not asking for repayments in a hurry? Are the banks afraid of selling these, so somehow protecting house prices from falling everywhere else? Can anyone explain?

    Its not the only suspicious new build in Croydon! Is this happening elsewhere too? Does anyone know what’s going on?

  • Alex

    Nick, the Shard that HMRC have ‘decided’ to locate in and pay rent too, would presumably also be the one that John Prescott overruled a public enquiry to grant planning permission to, with allegations later emerging that an aide of Mr Prescott demanded a £1m fee for doing so?

    I’m sure that the decision by a large Government department to relocate into the building was entirely on merit alone.

  • Dave O’C

    Nick #4, I wouldn’t worry too much about bankers or the rents they attract, their days are numbered in the world according to Vince.

    Merryn, surely you must have seen the ‘house prices rise because of the abolition of HIPS’ headline making the rounds yesterday, almost a direct throwback to the mania driven house price spiral inducing headlines of yesteryear, before you penned this article?

  • StevenL

    “Does anyone know what’s going on?”

    It was owned by Howard Holdings PLC that was taken over by Rushbrooke Property PLC which is registered in Northern Ireland.

    The trail goes cold internet wise, you’d have to get accounts from companies house.

    Property companies do sometimes issue bonds etc over the long term and have investors who are prepared to keep making interest payments.

    Also, remember a lot of bad property related debt got swapped for UK gvt bonds through the Special Liquidity Scheme to keep the ponzi bubble going and now resides at the Bank of England.

  • Bashful

    Thank you StevenL!

    I thought I was going mad somehow, because no-one seems to actually talk about these empty new and shiny flats. I am guessing they exist all around the country, not just in Croydon. And I am thinking that one day they will all have to come on the market as I don’t think banks or investers can prop them up for as long as it will take to get out of these current and oncoming bad times.

    I am guessing (and hoping) that all this supply will soon come onto the market and lead to the long awaited house price correction. I want to know why all journalists don’t seem to want to talk about this. Everyone must know a block or estate like this!

  • Nick

    “I am guessing (and hoping) that all this supply will soon come onto the market and lead to the long awaited house price correction. I want to know why all journalists don’t seem to want to talk about this. Everyone must know a block or estate like this!”

    The banks don’t want to talk about it because too much of their balance sheets are tied up in property and they can’t afford to write-down their value to market price.

    The Japanese banks took 20 years to fully disclose and write-down their property loans.

    The Americans tend to be more ruthless and demolish unsold new builds so as to keep overall property prices from falling too far.

  • Bashful

    Thanks Nick, between you and StevenL I have the explanations I was looking for.

    What I crave though is for this to be written about in the press, it feels weird that it doesn’t get a mention in all the reporting that seems otherwise happy to talk about all the doom and gloom to come. It seems an important enough detail to me. Not even Moneyweek mention these empty new builds. (I haven’t seen anyway)

    Shocking to hear the US demolish new builds actively to control house prices. That’s huge! I figure some of these towerblocks will get ruined through mis-use and need knocking down, but doing it to control house prices, its a sick sick world!

  • Dave

    Zooming back into the real world house prices comes down to the number of people with enough money and the sellers willingness to sell at a certain price. Believe it or not, there are allot of people with enough money (even first time buyers with money! shock, horror)and MOST people will not sell their house at a loss. This makes house prices remain at the levels they are now and most likely rise if only gradually.
    As a first time buyer I shook my head at historic prices in accordance to currect etc, but in the end I had enough money for a 30% deposit because I saved for a number of years and the mortgage is now affordable. I realised am not alone in this market as we made competitive offers on 6 houses before we finally got one.

    Is the market going to crash now? I doubt it, and you know what I no longer care! So keep rattling on about this, it won’t make a difference.

  • Alex

    Dave, my sentiments exactly.

  • Tj

    Have to agree with Dave…

    as first time buyers who’d rented for year thinking we couldn’t afford to buy…we just knuckled down to a few years of austerity whilst the rest of the country were spending like there was no tomorrow…

    We saved from 2005 to 2007, but houses got too far away from us…so we spent the money on our wedding instead.

    Then we saved from 2007 to 2009, whilst everyone around us was panicking about the recession, house prices dipped in Kent by 2009, and we got in, down 15-20% from what it sold for in 2006, it’s now back up to that level, we could afford to save, the mortgage interest is little more than we were paying in rent, and the total mortgage is less than 30% of our combined take home pay…and we’re on reasonable, but not excessive salaries, first time buyers are maybe just expecting too much, and not willing to cut back on fun times whilst they save a deposit…

    Tj.

  • Tj

    Have to agree with Dave…

    as first time buyers who’d rented for year thinking we couldn’t afford to buy…we just knuckled down to a few years of austerity whilst the rest of the country were spending like there was no tomorrow…

    We saved from 2005 to 2007, but houses got too far away from us…so we spent the money on our wedding instead.

    Then we saved from 2007 to 2009, whilst everyone around us was panicking about the recession, house prices dipped in Kent by 2009, and we got in, down 15-20% from what it sold for in 2006, it’s now back up to that level, we could afford to save, the mortgage interest is little more than we were paying in rent, and the total mortgage is less than 30% of our combined take home pay…and we’re on reasonable, but not excessive salaries, first time buyers are maybe just expecting too much, and not willing to cut back on fun times whilst they save a deposit…

    Tj.

  • Alex

    TJ I totally agree with you I must say. People on HousePriceCrash can sit around waiting for house prices to be £80,000 again. They’ll still be waiting when they’re 65, at which point they will be in a right mess having spent 25 yeras renting with nothing to show for it.