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First steps

First-time buyers: Scottish Widows Bank head of product and market development Murdo McHardy assesses some of the measures being suggested to get new buyers on the housing ladder and finds that more simplicity and awareness are needed

First-time buyers are the lifeblood of the mortgage industry. They have traditionally been young people or couples buying their first home but now overlap with people who have previously been owner-occupiers but for whatever reason – divorce, living abroad and so on – find themselves starting again as property owners at a later stage of life.

The problems faced by first-time buyers are well known, with the major impediment being the rate by which property prices have risen over the past five to 10 years compared with incomes. This has meant that those who want to buy their first home have been priced out of the market to a large extent and usually require some form of help to take the first step to ownership.

The housing market is not likely to go through a sharp correction any time soon and, if it did, this would not be in the best interest of the housing or mortgage markets. My feeling is that the market is too strong for this to happen and even the recent base-rate rise has not dimmed our enthusiasm to buy property.

It is widely felt that even a further increase, which is perhaps less likely now than a month or so ago, would not have any major impact on the market. Even though first-time buyers appear to be struggling, the market is being fuelled by an increase in people buying property for investment purposes or as second and holiday homes.

It would perhaps be easy to think that the issue of affordability only faces first-time buyers on lower incomes but this is not the case.

We recently attended a first-time buyers’ debate hosted by the Conservative party, who were looking to formulate their thinking.

The focus appeared to be on reintroducing a right-to-buy scheme where the rent people have paid would be turned into mortgage payments to go towards buying the property. I would have to question this on the basis that there did not seem to be any commitment to replenishing the current stock of local authority housing and, if this were the case, where would this leave those who would never be interested in home ownership? I am unconvinced of this as the way forward as it would appear to help with part of the problem but could create another one.

The other focus of the Conservatives would appear to be changes to the current planning system and, while this may help in alleviating the supply problem, it needs to be backed up with further commitments to ensure affordable housing is built as part of any new developments.

Lenders have tried to play their part in helping the situation. Their measures mainly revolve around increasing the amount they will lend to first-time buyers by way of loan to values or against income. In many cases, however, this still does not bridge the gap.

The shared-ownership initiatives put forward by the Government do have some potential but are available to so few people that it is impossible for them to make any real impact.

There are two real issues with schemes currently available. First, awareness is woefully low.

In a survey of potential first-time buyers we carried out last year, awareness of such initiatives was extremely low but once the concept was explained to them a significant proportion felt that this was of interest and they would consider it. There therefore definitely seems to be a willingness on the part of first-time buyers to trade off full ownership of a property for the ability to get on the property ladder somehow. It seems that owning 80 per cent of something is in many cases more attractive than owning 100 per cent of nothing.

The second issue is the complexity. We try to keep tabs on the schemes available but if you include the Open Market Homebuy initiative being introduced by Yorkshire Building Society, there are four different options available to potential homeowners and this does not include any incentive schemes run by local authorities on a regional basis.

My natural inclination is to say that the UK has such a strong and mature mortgage market that natural evolution will take place and solutions will continue to be introduced to the market.

I am not sure that Government-backed schemes can ever work properly in this country. If they are to have a chance, I feel that much higher awareness and simplicity are required than we have at present and also much more detail is needed on the Conservatives’ thinking before we understand whether this can contribute to a solution rather than be used as a vote-winning initiative.

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