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A consumer&#39s view

IFAs should take note of some housebuying figures which have alarming

longterm implications.

Latest figures from the Council of Mortgage Lenders show that the

proportion of first-time buyers fell to 29 per cent of lending for

the first time ever. The long-term trend has been for around 45 per

cent of all loans to be granted to FTBs.

The CML says: “This suggests that affordability constraints are

likely to be affecting them to a greater extent.”

This is probably the understatement of the year. With average house

prices in London and the South-east well over £100,000 and

substan-tially more in many areas, it is clear that FTBs are having a

really difficult time getting on to the housing ladder.

Couple this with the recent finding on student debt and the outlook

for new homebuyers is probably the worst it has ever been.

Since probably 99 per cent of IFAs&#39 customers are homeowners and

property constitutes by far the greater proportion of personal

wealth, this development does not bode well for the future.

Many sales of savings plans, insurance, pensions and other investment

products are linked to house purchase. Moreover, for the over-50s and

those who are retired, their home is a huge store of lifetime wealth.

Big numbers of those coming up for retirement now regard the family

home as their pension fund, expecting to trade down to a smaller home

at retirement and use the cash this releases to supplement pension


Things are not going to get easier. Graduates probably form a very

significant proportion of first-time homebuyers, not least because

they typically have higher earning power and can therefore save the

deposit sooner. But if student debt and house prices continue on

their current trends, mortgage lenders will be forced to rethink

lending policies for FTBs.

According to CML res-earch, more than 70 per cent of graduates are

keen to buy their first home. Thirty-five per cent of students polled

said they were not deterred from wanting to own a home by rising

graduate debt and that “the sooner they got on the property ladder

the better”.

The survey also showed that 85 per cent of students graduate with

debts of at least £10,000. It says: “Recent proposals to

increase tuition fees and introduce top-up loans suggest that debt

levels could inc-rease to around £21,000 when future students

graduate. Debt will have a much more pronounced effect on the

first-time buyer market of the future.”

The implications for investment advisers are clear. If young

homebuyers are spending more of their money on paying off debt and

acquiring a home, they will have less left to save – whether it is

pensions, Isas or other forms of investment.

Moreover, the first-time buyer market is clearly being supported by

parents and grandparents. FTBs today put down an average deposit of

around 23 per cent. This is historically very high.

If you couple this with the record levels of remortgaging going on

among existing homebuyers, it is obvious that parents and

grandparents are helping out, remortgaging their own property and

giving or lending children the cash for the deposit.

But will they be in a position to do this in future? If parents have

little or no pension savings, whether in personal pensions or in a

much reduced occupational pension scheme, they are going to need

every penny of surplus profit in their homes to be able to afford to

retire at all. The current ability to give children the deposit for

their first home by withdrawal of equity by parents could easily

become restricted or cease to exist.

Today&#39s 21-year-old graduates face starting working life with

probably £15,000 of debt, needing a minimum lump sum of

£25,000 to afford their own home and a pension saving requirement

of at least 10 per cent of salary from day one to fund a decent

pension now that employers have largely abandoned final-salary

schemes. That does not leave much room for discretionary saving or

advice from an IFA.


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