Rob Barnard is head of business development at Aldermore Residential Mortgages
Research published recently by First Direct illustrates very clearly why the housing market has stalled.
In a nutshell, buyers have never had it so tough.
Since 1990, the average housing deposit has soared nearly tenfold from £6,793 to £65,924 today. Over the same period, house prices have risen by a factor of 4.32, whilst average household incomes have lagged behind and risen by only 2.53 times. And in 2010, which was the most difficult year in which to buy property, average house prices rose to 6.3 times average income, with the average deposit being 1.7 times the average income (which compares to 1995, the most affordable year, when the house price ration was 3.4 and the deposit ratio was 0.3 times the average income).
No wonder first-time buyers have become reluctant renters, which has pushed rents in many areas well above the amount buyers would pay for an equivalent mortgage.
The only good news in this sorry story is that interest rates remain at a record low and will probably remain that way for the foreseeable future. Which makes the plight of first-time buyers even more frustrating, because many know that switching to a mortgage would probably save them money each month.
This situation has to be addressed sooner or later, because it's unsustainable. And to make matters worse, we're also not building enough new housing. It's estimated that if housing is to keep pace with demand, we need to build approximately 250,000 new homes every year and yet over the past 12 months we've built just 98,300.
It's a vicious circle: a stagnant first time buyer market means builders are reluctant to build affordable new homes, which makes it more difficult for first-time buyers to get a foot on the housing ladder. There is no getting away from the fact that the size of deposits required by first time buyers is the single biggest factor holding back the market. This is the big issue the lending industry needs to address.
As you may be aware, Aldermore has recently launched both 100% and 95% LTV schemes aimed at helping home buyers who are struggling to raise a deposit. But Aldermore is not going to solve the problem by itself. What's needed is for the big lenders to also develop solutions to help first-time buyers. At the moment, they seem happy to simply focus on the sub 75% LTV market whilst they rebuild their balance sheets. It may suit their needs, but it's doing little to help the market pull out of the doldrums.
We hear a lot about the Project Merlin banks agreeing to government lending quotas, which creates a positive impression that they are playing their part. But if all they do is focus on low LTV low risk lending then they're not really doing much to help either the housing market or the economy get back on their feet.
The market needs more innovation; more lenders willing to address the issues head-on and get the market going again. Simply doing more of the same is not good enough.
