SPECIAL FEATURE: The first-time buyer time bomb
“First-time buyer exclusion is a social, economic, and policy scandal that will cost the nation billions and could well divide the nation into the housing haves and have nots unless we do something about it now.
“This is no idle claim – the statistics paint a grimmer picture that the rhetoric.
“Each year another 850,000 young people turn 18. A raft of research indicates that at least 75% of them want to be homeowners one day but most cannot get on the property ladder. This problem has persisted for several years resulting in first-time buyer exclusion for millions.
“Assuming a worse case scenario (a 30% house price correction followed by zero inflation thereafter) The Model Works projects that someone excluded for life will be £454,000 worse off than someone who manages to buy their own home.
“Currently, over two thirds of new households are starting out in the private rented sector and the cost of renting there is twice that in the public sector.
“Just over a year ago research highlighted that 95% say they have no spare cash to save, no interest in saving for a deposit or are trying to save but failing to do so and buy-to-let proponents point to ever rising rents.
“Many will be locked into renting throughout their lives. They will save less, contribute less into a pension and have no equity when they retire, but have to continue paying rents.
“TMW calculates that unless they have managed to save around £106,000, to pay their rent once they retire, they will have to fall back on housing benefit. They will not own their own home and will be less able to contribute towards their own care.
“The retired population is projected to double by 2050 and someone retiring then will be 29 today and likely to be experiencing first-time buyer exclusion.
“A rough calculation indicates that this would increase the taxpayers’ housing benefit costs by over £50 billion per annum. Obviously, the government would never allow this to happen and so once the problem is recognised, it will take action and this will affect both first-time buyers and the buy-to-let sector.
“Even today first-time buyer exclusion is impacting on housing benefits. In 1991 housing benefits were around £4.4 billion at today’s value.
“By 2002 this had more than doubled to £9.4 billion and by 2009 it had more than doubled again to £20.2 billion.
“This exponentional rise correlates with the increase in size of the private rented sector and the rents it charges.
“The Department of Work and Pensions has now capped housing benefit but this will not affect the number of people forced to rent and have little affect on the rents they pay.
“When the cap was announced Eric Pickles the Communities Secretary stated that these changes could make 40,000 families homeless. Once again the taxpayer will have to pick up the tab.
“So resolving first-time buyer exclusion is in the interests of everyone, including not just the individuals involved and the taxpayer but also the lenders and the brokers, the agents, the surveyors and the entire building industry, indeed everyone with an interest in seeing the homebuying industry return to health.
“Taking stock on existing initiatives is helpful. The most promising are those that involve coordinated action across the stakeholder groups.
“A good example is the government’s NewBuy scheme. Unfortunately, the take up is simply too small to resolve the problem. For example NewBuy, which applies only to new build homes is expected to deliver 25,000 new properties into the market between 2012 and 2014 .
“Over the same period 1.7 million young adults will be added to the pool of prospective first time buyers and most of these will want to buy one day.
“Similarly, Lloyds has announced it is allocating £5 billion to first-time buyers in 2012 to enable 50,000 first-time buyers to become homeowners.
“However this represents just 8% of the increasing demand and a much smaller percentage of the total number of individuals already excluded.
“Lloyds is the UK’s largest lender and a trailblazer with this initiative. But much more needs to be done.
“A practicable solution is affirmative action in support of first-time buyers involving the government, lenders and building industry. Given that the system for getting young people into their own homes is now broken, perhaps we need a new system just for them.
“Some will be concerned that this will disadvantage existing homeowners, but this is a different problem that will require a different solution. TMW is now developing a model to define the affirmative action options.”