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David Finlay: First-time buyers are getting back on the ladder

David Finlay MM blog

There was a time not so long ago when I expected to be flicking through various TV channels – probably on a Sunday evening – and see Sir David Attenborough cowering amongst the hedges, walls and alleyways of our capital in a fruitless search for the lesser-spotted first-time buyer. I can almost hear his inimitable, hushed tone as a couple approach a property only to come out a few minutes later, maybe followed by a undercover dog-cam, muttering how overpriced it was, if only they could get a mortgage and how it feels like they will rent forever.

Fortunately, this is a programme that has never come to fruition and the truth is that with 216,200 first-time buyers becoming homeowners in 2012, they are very slowly becoming a little easier to spot. These recent figures from the Council of Mortgage Lenders outline that this is the first time the annual total has exceeded 200,000 since 2007 and represents a 12 per cent year-on-year rise on the 193,000 loans advanced to FTBs in 2011.

Breaking this down a little, FTBs in the fourth quarter accounted for 42 per cent of all house purchase loans, compared to 39 per cent and 38 per cent in the third and second quarters, respectively. There was also said to be a modest increase in lending at higher loan-to-values. While the average LTV stayed at 80 per cent, where it has been for two years, one in 40 FTBs took out a 95 per cent LTV mortgage compared with less than one in 100 a year earlier. Around one in five FTBs borrowed 90 per cent LTV or more.

It is hardly time to buff up those trumpets and dust off the bunting but at least FTBs are seeing some increased options and hope. Of course much of this lies at the door of improved funding conditions which have been strongly aided by the Government’s Funding for Lending scheme. This has helped accelerate competition amongst lenders to help provide the key impetus in rates reaching some record lows, LTVs to steadily rise and some much needed innovation returning to the marketplace. Of course other schemes such as developer incentives, NewBuy and individual council initiatives have also helped. For example Essex County Council recently launched a scheme in partnership with the county’s district, borough and city councils, which will guarantee FTB’S up to 20 per cent of the mortgage loan value.

But there remains one large, and growing, obstacle which we all recognise to be the hefty deposits required by borrowers. According to the Home Builders Federation, first-time buyers in their twenties are facing the prospect of having to save for 10 years on average in order to afford a deposit. The HBF’s latest Broken Ladder report says for those aged between 22 and 29 across England, the average deposit now stands at 229 per cent of net annual salary and 300 per cent in London. Despite normally having higher average salaries, things only marginally improve for FTBs between 30 and 39, with the average deposit currently standing at 176 per cent of net annual salary and 232 per cent in London. It added that across England, FTBs in their thirties need to save 50 per cent of their discretionary monthly income every month for six and a half years in order to save a deposit.

As lenders we can ill-afford to ignore these figures and getting to grips with how borrowers are broaching the deposit factor is a key component in the lending cycle. And an increasingly important factor in this cycle is the Bank of Mum and Dad. Intergenerational lending is nothing new but it has certainly increased as a preferred method of borrowing and there has been a noticeable shift in attitude from lenders to try and incorporate some element of this into their product portfolio.

This is an area which will remain a strong focus of many lenders when it comes to fulfilling their first-time buyer lending aspirations for the foreseeable future, but it is also important to underline that intergenerational lending should not be viewed as the all-compassing answer for FTB’s or homemovers.

Options and choice remain vital in the residential purchase arena and it is innovative products and schemes, alongside some robust and healthy lending fundamentals, which will enable FTBs to keep moving further away from that dreaded endangered species list and keep Sir David at bay.

David Finlay is intermediary managing director for Barclays


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