Posted by: housingdabble | March 25, 2010

Have FTB’s had the needed leg up?

In a recent Rightmove Consumer Confidence Survey, 61% of those in rented accommodation stated that they would like to buy but could not currently afford to do so. With today’s budget announcement of a further stamp duty holiday, this time available to only FTB’s but for properties priced up to £250k, will this be the boost required to bring a significant number of FTB’s back to the market?

Three key factors in FTB’s ability to get on the housing ladder are Affordability, Availability of Mortgages and the level assistance available to help with the purchase.

Let’s consider these three elements to see if the time is right:-

Affordability – Mortgage Payments V’s Earnings

It doesn’t take an expert to tell you that house price are pretty low at the moment with the average price paid by an FTB in 2009 being 10% lower than in 2008, at £133,794. As a result the average mortgage for a new FTB in 2009 was £104,000 which was 14% lower than in 2008 (£122,000).

With prices being so low that suggests a good time to jump onto the ladder, reflected in mortgage payments 27% lower than the average monthly mortgage payment in 2008.

If you assume a 25-year repayment mortgage at the industry average tracker variable interest rate for a new borrower this equates to a mortgage payment of £562 versus £768. That’s over £200 per month to go towards that flat screen TV to go in the new pad.

One measure of affordability shows that the proportion of earnings required to pay a mortgage has halved in the last two years, a result of the combination of lower house prices and interest rate reductions.

The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates. So what mortgage deals are available?

Mortgage deals availability

The tightening in lending criteria since the summer of 2007 has meant that some potential FTBs have been unable to enter the market despite the marked improvement in affordability. The good news though is that there are significant signs that lending criteria has stopped tightening

The number of live mortgage products rose by 33% from a low of 1209 in April 2009 to 1610 in December and with interest rates set to remain low for some time, most industry experts predicting them to stay at the current rate until the end of 2010, this rise in mortgage products looks set to continue.

There has been a modest increase in the availability of mortgage credit recently, including signs of products with 90 and even 95% LTV emerging, but lenders are targeting the more credit-worthy applicants as they seek a greater share of the good margins currently available in the market to rebuild their balance sheets and profitability.

Assistance in buying

Recent research has found that increasing numbers of FTBs have been receiving financial assistance to raise funds for a deposit with the latest estimates indicating that around 80% of FTBs are getting such help.

The CML estimates that the average age of those FTBs who have not had financial assistance has risen sharply from around 33 in late 2007 to 36 now, showing that even FTB’s well into their 30’s are seeking assistance from family.

The national average deposit required for a FTB in 2009 was £29,439 (22% of asking price), so the stamp duty saving of up to £2,500 is hardly going to make much of a dent on the savings required to get moving.

Other assistance comes in the form of incentives from new home builders and also affordable housing schemes allowing aspiring home-owners to purchase a share in a house while renting the rest – giving them an opportunity to get on the housing ladder earlier and buy the remainder of their home as and when their finances allow.

One example of this is the Government’s Homebuy assisted purchase scheme for new-build properties, but recent research by Rightmove has uncovered a lack of awareness in the scheme among those whom it is intended to help. They found that only 22% of the 3,463 potential first-time buyers surveyed stated they were aware of the scheme, with another 34% saying they had heard the name but were unaware of the details. 44% had never heard of it and whilst these scheme’s aren’t going to help estate agents (unless you have retained developer relationships) they give an indication of the appetite of FTB’s to actively search out routes to get on the ladder.

In summary, whilst affordability is good, there are too many factors weighing against FTB’s for the latest stamp duty holiday to have a significant effect and availability of credit at favorable terms remains the primary issue. Confidence would seem to remain low and for the short term at least, it seems that the bank of mum and dad will have to remain firmly open for those few that decide to take advantage of the low house prices and interest rates.

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