FTB deposit is a year’s salary
Ahead of today’s first time buyer summit hosted by housing minister Grant Shapps, the CML said those aged under 30 are now heavily reliant on parents and other relatives for financial support.
It estimates that in 2005 38% of those aged under 30 required help with their deposit. By 2009 an estimated 84% of FTBs in this group were assisted.
It also said the median age of an FTB has remained at 29 in recent years but assistance from parents or other relatives has helped younger FTBs in particular, and helped keep the typical age of an FTB stable since 2007.
The typical age of those FTBs who did not receive assistance and were unlikely to be former owner-occupiers returning to the market increased from 28 in 2005 to 31 in 2010.
The CML said: “First time buyers are often seen as a bellwether for the health of the wider housing market – a crucial, though not unique, source of liquidity at the lower end of the market that helps to create mobility for other people to move around within it. But affordability pressures for FTBs have been growing since the late 1990s, and have got much worse since the credit crunch.”
The trade body also said today’s summit must focus on the causes of problems for buyers in the current market and not on their effects.
It suggests these causes include the severe shortage of wholesale funding, making it more expensive for lenders to raise retail deposits.
The CML also said regulatory reforms mean that lenders now have to hold more liquidity and capital and requirements to hold more capital to support lending at a higher loan-to-value ratio have a direct effect on many fist time buyers.
Other factors include prudential and conduct of business regulatory requirements, additional regulatory pressures on building societies and lenders rebuilding their balance sheets post recession.
It also said the shortage of housing in the UK was pushing up house prices impacting on affordability for first time buyers particularly.
The CML said: “Looking beyond this year, a return of more normal mortgage funding conditions is probably a prerequisite – but will not, in itself, be sufficient – for a significant return of FTBs. More widespread availability of funding could help bring about an easing of LTV requirements, potentially decreasing the dependence of FTBs on parental support.
“Balanced against this, however, are the regulatory requirements for lenders to hold more capital for lending at higher LTV ratios. Under Basel rules, lenders typically may have to hold six to eight times as much capital for a mortgage advanced at an LTV ratio of more than 90% than the capital required for a loan with an LTV ratio below 60%. And in order to generate sufficient return on capital, many lenders therefore make borrowing at higher LTV ratios more expensive.
“More generally, we expect affordability pressures to persist, given that any significant decrease in the ratio of house prices to earnings is unlikely (particularly given the low levels of house-building we expect in the foreseeable future, which will help underpin house prices). On top of this, other regulatory changes, including those emerging from the mortgage market review, are likely to increase mortgage costs for all borrowers and bear down on the availability of mortgage credit for FTBs.”
It said FTB numbers may take several years to approach the annual rate of 400,000 to 500,000 purchases that we have seen historically, and which would be supported by demographic factors and long-term aspirations to home-ownership.