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Why first-time buyer’s headache has become a migraine

Nia Williams

May 6, 2015

Tony Ward is president and CEO of Clayton Euro Risk

 

Given comments in the media this week, I feel I need to follow up on my last blog: the urgent need for assistance for first-time buyers.

I was saddened – although not surprised – to learn that recent research from KPMG suggests that property is just ‘out of reach’ for average salary earners.

In fact, a first-time buyer in London would need to earn an annual wage of £76,971, which is £50,000 more than the national average salary of £22,044. 

Indeed, for the country as a whole, the average wage needed to buy a first home is £40,553, so hardly a feasible option for many people.

Jan Crosby, head of housing at KPMG, said: “These figures make for frightening reading. Now, unless you earn above average or receive an inheritance, it is unlikely you will be able to afford to buy.”

The research also pointed out that while three-quarters of people would prefer to buy rather than rent, two-thirds believe there is insufficient housing. I’m surprised it’s as little as two-thirds!

So what’s to be done?

Various schemes are out there and some new ones are possibly coming along, depending in the outcome of the election.

The parties have made a range of promises to help this market – from the provision of starter homes to stamp duty ‘holidays’ for first-time buyers – but will these initiatives make any real impact? 

Help to Buy ISAs will be introduced in the autumn regardless of which party occupies No. 10.

However, the Help to Buy mortgage guarantee scheme is due to end on 31 December 2016 while its sister scheme, the Help to Buy equity loan, is extended until 2020.

Lenders can do their bit by being innovative.

If the right affordability checks are made and criteria adopted, then products can be priced accordingly to suit this market.

And lenders are starting to do more – partly because they have realised that they must attract this market to assist with their gross mortgage lending targets.

Take for example Barclays, which has just revamped its Family Springboard mortgage with a stepped reduction in interest rates over a three-year period. The product is available to 95% LTV and has no fee. ‘Helpers’ are expected to deposit 10% of the purchase price into a Barclays account but this will be released after three years with interest, as long as repayments are kept up to date. 

Andrew Montlake from Coreco noted that this product ‘shows that innovation can exist in the current environment and these improvements confirm that there are lenders out there that want to lend and support the first-time buyer market’.

I agree. What we need is more of the same.

 

Marty Finegold

 

On an entirely different note, like many others in the mortgage market I was saddened to hear of the death in March of Marty Finegold.

Marty was a clever man: I first met him when he was a Goldman Sachs bond trader in the 1980s.

He had a keen strategic brain. He didn’t get everything right but then who does?

He tried to implement the common electronic trading initiative through IFOnline which proved harder than he thought it would but I suspect it was more to do with the market not being ready.

He will forever be remembered as the man who brought Kensington to the market. He was a private man – not sure he would want to see his name in the press but it seems wrong not to acknowledge him in my view.

He shall be remembered and missed.


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