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The first shall be last

Gregor Watt reports on the parlous state of the first-time buyer market

The state of the first-time buyer market attracts a lot of coverage when it comes to mortgages, centred on the concern that the rest of the market is dependent to a greater extent on the fortunes of this end of the mortgage sector.

A recent report from the Council of Mortgage Lenders, highlights the problems for FTBs. The report follows the CML’s first-time buyer summit earlier this year and does not make encouraging reading for anyone hoping for a rapid bounce back at this end of the market.

The CML says faltering buyer confidence combined with lower levels of funding and much tighter lending rules is combining to choke the FTB sector.

The amount of deposit that FTBs have to put down to buy a property has shot up in that last four years. In 2007, more than 50 per cent of first-time buyers were using loans with LTVs of 90 per cent loan to value or higher, with around another 30 per cent borrowing at least 95 per cent of the purchase value. But by 2010, loans offering LTVs of 95 per cent or more had effectively disappeared and loans of 90 per cent LTVs or higher accounted for less that 20 per cent of the market.

These figures are backed up by statistics from Santander, which says the typical deposit for a first-time buyer is 17 per cent of the purchase price.

The difficulty in getting funding seems to be pricing some people permanently out of the market.

According to, the average age when potential buyers expect to make their first property purchase is now 38, increasing to 43 in London, and it estimates that 31 per cent of potential buyers do not now intend ever to buy due to prohibitive costs. mortgage spokeswoman Clare Francis says: “The housing market has been hugely affected by the credit crunch and economic downturn and first-time buyers have been hit the hardest. It is easy to see why nearly a third of non-home owners do not intend to step into the property market. House prices may have fallen in many areas but they are still high. This, coupled with the need for a high cash deposit, is pushing many people out of the market.

There is still limited choice if you have a deposit of less than 10 per cent and the rates on these mortgages are around 5.3 per cent, which is significantly higher than the most competitive rates.”

There are some positive signs for first-time buyers, with more high loan to value deals coming back on the market.

Last week saw Santander and Norwich & Peterborough Building Society launch new 90 per cent LTV deals. says there has been a 200 per cent increase in the number of loans aimed at FTBs. The average rate on the deals available is also coming down, with the average FTB rate now 2.43 per cent cheaper than in 2007.

N&P’s product manager for mortgages Richard Barker says: “These changes will be a welcome boost for many prospective homeowners who might have struggled to raise a sufficient deposit to purchase or remortgage in the current environment.

But even with the market loosening a little and with Government initiatives such as the FirstBuy scheme announced in the Budget, coming up with a big enough deposit to make the step into the housing market remains stubbornly out of reach of many people.

Santander says it takes the average borrower 29 months to save the deposit for their first house purchase. Moneysupermarket says the average LTV for a first-time buyer is now 77 per cent. For a property worth £150,000, this means a deposit of £34,500 is needed.

Francis says the CML’s research shows that 5 per cent of potential first-time buyers are now gambling on a lottery win to help them with achieve their goal.
She says: “The fact that some people are playing the lottery rather than turning to friends and family for help illustrates how squeezed the nation’s finances are.”

The CML suggests there are some approaches that can be adopted to help tempt lenders into the high-LTV market, including mortgage indemnity insurance, parental guarantees or reintroducing products that allow borrowers to demonstrate financial discipline by requiring them to prove an ability to save regularly.

But it says regulatory requirements mean lenders need eight times as much capital to lend over 90 per cent LTV than to lend at less than 60 per cent of LTV, so banks and building societies will remain cautious of this section of the market.

The CML report concludes: “Although there have been a number of initiatives to help first-time buyers, the relatively small scale on which they operate – combined with a severe shortage of funding, and a risk-averse market environment – means we do not expect there to be a significant increase in first-time buyer activity in 2011 or 2012. The reality for first-time buyers is that, although there is widespread sympathy for their plight, they are only one of a number of different types of consumer who are experiencing difficulties in challenging housing and mortgage market conditions.”


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