A foot on the ladder

A home of you own and getting a foot on the housing ladder are two phrases that continue to dominate the property market. In the same way that the ‘first-time buyer,’ synonymous with both, is constantly under the spotlight.
“How much can you afford?” or “How much money have you got?” are perennial questions facing the first-time buyer. It was Winston Churchill who wryly observed, “Saving is a fine thing. Especially when your parents have done it for you.”
When it comes to buying a home, his words have an uncanny ring of truth. Research by the Alliance & Leicester reveals that nearly half of all parents are prepared to put down around £18,000 to help their children get that all-important foot on the ladder.
“As prices continue to rise,” says Stephen Leonard of the Alliance & Leicester, “it’s no wonder that first-time buyers are looking for extra funding from their parents in order to get a home of their own.”

Feel the pinch
Over the past 10 years the average house price has trebled to more than £180,000. So it should come as no surprise that the average age of a first-time buyer, according to the Halifax, has risen to 34 compared to 29 in 1974.
“First-time buyers will feel the pinch too with the latest interest rate increases,” says Richard Brown from the financial website moneynet.co.uk. “Our figures indicate that the average first-time buyer with a salary of £36,000 will be needing a mortgage of £145,000 at four times their salary.
“This means that at five per cent interest rate this will be costing them £850 in monthly mortgage repayments, or nearly 40 per cent of their take-home pay.”
A housing charity, the Joseph Rowntree Foundation, confirms there is a widening gap between prices and incomes. Young people in 50 of the most expensive parts of
England, including areas in the south east, need five or six times their annual salary to afford a two-bedroom property.
Although several building societies will advance 95 per cent of the purchase price, Richard Brown urges caution: “The more you put down, the better the deal. First-time buyers can even get 120 per cent by taking out a loan on top. But be very careful you don’t take on too much risk.”
Prospects for first-time buyers are not encouraging. In 2006, house prices rose at their fastest pace in over four years. House building figures, however, continued to fall, especially in the south wast where, according to David Stubbs, senior economist at the Royal Institute of Chartered Surveyors, there has been almost no growth for the past year. At the same time, mortgage approvals in 2006 rose to the highest level in almost three years, indicating that overall the property market remains buoyant.

The average age of a first-time buyer is now 34, compared to 29 in 1974

In October 2006, the Government introduced the Open Market HouseBuy scheme. This £230 million scheme was intended to help 20,000 frustrated first-time buyers buy a property jointly with a housing association and a bank or a building society.
There have been shared ownership initiatives before and an earlier version helped 10,000 key workers buy their first homes.
The difference now is that applicants are offered the chance to buy any home of their choice on the open market with the aid of a 25 per cent interest-free ‘equity loan,’ which the owner must repay at some stage, along with a share of the increase in the value of the property.
The main limitation is that buyers must be able to raise a conventional mortgage for 75 per cent of the value of the home and prove that they would be unable to buy a suitable home without the loan.
First-time buyers have reacted enthusiastically to the latest scheme but Sue Anderson of the Council of Mortgage Lenders is not so convinced that offering these sort of inducements is a realistic way of solving an escalating housing problem which has seen the average house price rise to eight times the average salary. Selecting just a comparatively small number of lucky first-time buyers, out of several million, can only scratch the surface of the problem.

Property speed dating
If this scheme appears restrictive, many first-time buyers are turning to co-buying with friends. For them this can seem the only way of ever getting on the property ladder. But if their friends are not like-minded there is now an on-line chat room Co-BuywithMe - the property market equivalent of speed dating - which helps young would-be buyers to get together to co-fund shared properties.
Another online specialist, SharetoBuy, meets the growing demand for joint mortgages and offers a free mortgage broking service for all joint buyers. Both represent an interesting insight into the mind of the modern first-time buyer and an emerging market trend.
First-time buyers can also trawl the ‘Property for Sale’ pages in local newspapers, or walk into their nearest estate agent. In Sevenoaks, Tim Foulkes of Ibbett Mosely, whose other locations include Maidstone, West Malling, Edenbridge and Biggin Hill, confirms that over five per cent of applicants seeking property in his area are registered as first-time buyers.
This rises to 7.28 per cent when all their offices are taken into account. “A two-bedroom terraced cottage in Otford Road near Bat and Ball station would be in the region of £175,000, which for a first-time buyer might present a more attractive proposition than a studio flat in the town for £130-150,000.
“It pays to shop around for your mortgage and when embarking on home buying for the first time always look for the best medium or long term deal, rather than the short-term.”

Words by Roger Paine

---