New figures paint a grim picture for would-be first-time buyers

David Kingman explains a new set of figures from the Council of Mortgage Lenders which shows how difficult the situation facing first-time buyers has becomeHouse Pound

Pretty much everyone now has some awareness of the problems facing first-time buyers in Britain, thanks to increasing media coverage of our national housing crisis. Yet few people are well-informed enough to know just how acute the problems have become.

Council of Mortgage Lenders data

Fortunately, a new set of statistics from the Council of Mortgage Lenders (CML) paints the difficulties facing young would-be buyers in sharp relief.

Among the key findings are:

  • The overwhelming majority of people still aspire to own their own home. 85% of people surveyed by the CML said they aspire to become homeowners in the long-term.
  • However, the number of people successfully achieving this aim has fallen dramatically in recent years. Since 2008, the number of first-time buyers has declined from a long-term average of half a million a year to just 200,000 (a fall of 60%).
  • The biggest barrier preventing first-time buyers from getting on the property ladder has become the size of the deposit. In 2007, the average buyer needed to find 10% of the purchase price to pay as a deposit, but this had increased to 25% by 2009 (although there has been some respite since then, with the average now standing at around 20%).
  • The average first-time buyer now pays a deposit of £26,000, equal to 79% of the typical first-time buyer’s average annual income. Both figures have roughly doubled since 2007.
  • In 2011, 92% of first-time buyers aged below 25, and 73% of those aged 25–29, needed financial assistance from family members to afford the cost of a deposit (hence the growth in the so-called “Bank of Mum and Dad”). Both age groups have witnessed a rise of more than 40% in these figures since 2005.
  • The average age across all first-time buyers is now 29, but this rises to 33 for those who don’t receive financial assistance from relatives.
  • These figures are all averages for the country as a whole, while there is some evidence that the picture looks even bleaker in London and the South East, where Britain’s housing problems are most acute. Just 29% of all first-time buyers in Greater London were unassisted in 2011, compared to 44% in Northern Ireland.

A social problem, as well as an economic one

Young people who want to get on the property ladder clearly face a huge array of difficulties. Unfortunately, the CML doubts that it will get any easier in the long-term:

“In what is likely to continue to be a challenging environment, deposit requirements are likely to remain elevated in the immediate future. The recent modest increase in the proportion of unassisted first-time buyers may reflect the gradual easing of loan-to-value criteria we have seen this year. But against a hugely uncertain financial backdrop, it remains to be seen whether the industry will have the ability to continue lifting loan-to-value limits.

At the same time, wage growth is sluggish and pressures on household budgets are continuing to intensify. While these factors continue to bear down on the ability of young people to save for a deposit, the ‘bank of mum and dad’ is likely to continue to see a lengthy queue of applicants.”

This will have knock-on effects for society. Policy-makers need to start taking the issue of housing affordability seriously as a social problem, rather than simply an economic one. If a generation of young Britons are having to put away virtually all of their disposable income to afford the combination of rent and saving for a deposit, then what will happen to the other things which they could have spent that money on?

Consumer spending, getting married, having children, saving for pensions, or helping with care for elderly relatives could all start to feel the squeeze as a consequence of the housing crisis. Britain needs to get a grip on its out-of-control housing problems if we don’t want to store up a web of bigger problems for future generations to untangle.

Posted on: 18 February, 2013