The difficulties of the first-time buyer (FTB) are nothing new. People are renting longer, buying later and affordability is pushing people to the limits of their borrowing capabilities. In such times, it is little wonder the buy-to-let (BTL) market has taken off with such extraordinary vigour, now making up 10 per cent of the mortgage market and some predicting this could grow to a third.
Even graduates, deemed to earn significantly more than non-graduates – yet certainly now suffering significant more debt – continue to struggle. Research by Scottish Widows has shown 56 per cent of graduates are yet to get on the property ladder, with a quarter who graduated 10 years ago still to buy their first home. Predictably, unaffordable house prices are the major stumbling block for 70 per cent.
When one considers the average FTB house price has risen 14 per cent in the last year alone to £122,045 – £179,228 in London – it is unsurprising that one in 10 graduates believe they’ll never be able to buy.
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Lapse or default
So where does the market and FTBs go from here? The government has positioned affordable housing as one of its main priorities and pledged three million new homes by 2020, yet this is little comfort for today’s FTBs. With the severe lack in supply, could we be heading back to an era last seen in post-war Britain, where renting is the major way of life?
For Mark Chilton, chief executive of Homeowners Mortgages, BTL may grow to around 20 per cent of the market, but he does not believe it has the potential to reach a third. For him, the significant issue is the lack of financial knowledge graduates have. “Most young graduates aspire to get on the property ladder, but don’t think they can afford it. This is a group that is quite commercially naïve and immediately lapse into the idea of renting rather than teaming up and buying together. They don’t know they can get very high loan-to-values or that there are lenders with deals that expand affordability for graduates. If we are going back to the age of renting then it is through lapse or default, rather than doing something positive.”
Colin Snowdon, chief executive of Wave, adds that graduates are a much bigger group than 30 years ago and many do not enter the ‘professions’, but go to jobs that previously would not have required anything more than a grammar school education, such as banking or media.
He continues: “It’s not surprising graduates of 10 years ago are not on the property ladder. It begs the questions, do they want to? Research has shown a lot of young people don’t want to buy and actually delay purchase and then find that, having delayed, they can’t afford to buy now.
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“The BTL phenomenon is not a bubble as some say, but the re-emergence of a sector that has a valid place in the market, so you could say we are returning to before.”
Melanie Bien, associate director at Savills, believes the question of opting to rent over buying is pertinent to the issue. She explains: “People blame BTL landlords for pushing up house prices, but I don’t think that is the case. The real problem is supply. People are having to rent for longer and are in much better quality of property than before BTL. The picture is not as bleak as people make out. It is difficult, but there is an element of people choosing not to buy. Jobs are more flexible and sometimes it pays to retain that flexibility, especially in the early part of a career, so home ownership is not at the top of some people’s list.”
More conservative
Yet, Chilton does not believe there is any great ‘sea change’ in peoples’ thinking and graduates are merely more conservative then before, and more worried about paying off student debt than buying.
Chilton maintains education is vital for graduates to understand what is available to them, but points out that the graduates market is incredibly stratified. While some will leave university and earn £30,000 as a starting salary, others begin on £15,000. He adds: “It would be interesting to take the research further and see where the graduates went to university, what degrees they got, and what their earnings are. I think we would find stark differences.”
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Nevertheless, Bien states Britain is and will remain a nation of home owners with the desire to buy. She says: “The issue is meeting peoples’ expectations. Just because they can rent a lovely place in one area, people have to be realistic about buying something similar in the same place.”
The BTL sector is destined to grow further, be it to 20 or 30 per cent. Predictions are inevitably hazy and much will depend on how well the government meets the demand for more housing and how affordable that can be kept. Perhaps Britain will never be anything other than a nation of home owners, but it seems unlikely we will return to the days of the average person buying in their early 20s.
