Even with house prices beginning to fall, many hopeful first-time buyers (FTBs) still find themselves comprehensively priced out of the market.
The latest figures from Nationwide reveal that house prices are down 5.3% year on year — but this is small comfort. The deposit alone is enough to knock the stuffing out of most wannabe FTBs.
The average house deposit for FTBs across the UK now stands at a hefty £36,489, and even higher for London at just over £70,000, according to recent data from national housebuilder St Modwen Homes.
If we help FTBs and move the market as a whole, the developers and the building industry will benefit too
The demand for new homes is well documented, but increasing the supply and ensuring a meaningful percentage are within the true definition of ‘affordable’ appears impossible to achieve right now.
When it comes to feasible solutions, despite the bold headlines that accompany most proposals from ministers or opposition politicians, the practicalities are usually found wanting.
Take the recent proposal by levelling-up secretary Michael Gove to relax water pollution rules to boost UK housebuilding.
Gove unveiled a plan to scrap ‘nutrient neutrality’ guidelines, which he grandly claimed would enable an extra 100,000 homes to be built by 2030, delivering an £18bn boost to the economy.
The guidelines were blamed for stalling or completely blocking housing development in many areas across the country, as well as being burdensome and expensive.
We risk creating a lost generation of FTBs — a terrible scar on the face of a country that prides itself on people’s ability to own a home
The plan from Gove may have grabbed the headlines for a short while but was this ever going to meaningfully affect the supply issue?
We are unlikely ever to know because the House of Lords voted against an amendment to the Levelling-up and Regeneration Bill, which would have allowed the measure to be introduced.
No sooner had the lords put the kibosh on this plan than ex-prime minister Liz Truss was telling a Conservative Party Conference fringe event that the UK could build 500,000 new homes a year — helped by tax breaks. Given that her own party in 2022 watered down plans to deliver a much lower 300,000-home target, expectations of delivery will be underwhelming.
On the other side of the political divide, Labour has pledged to develop on green-belt land. But the general election is some way off and, with scant detail so far, it is hard to evaluate how many green-belt big ideas will ever see spades in the ground.
We need to develop a long-term plan before things get even worse
Just Mortgages chapter managing director John Doughty points out that both major parties have talked up homeownership as a priority with the UK heading towards a general election.
“If that truly is the case, we need to see some concrete action to increase supply,” says Doughty.
Federation of Master Builders chief executive Brian Berry echoes this sentiment.
“Having taken the decision to only have 300,000 homes as an ambition, not a target, the government needs to set out a clear plan for housebuilding to demonstrate that it is committed to substantially increasing housing supply.”
I’d love a Help to Buy deposit option that is available for any house — maybe only 10% or 15%.
He adds: “The sad fact is that the housing market in this country is in crisis and has been for a long time.
“The lack of a visible government plan to address this is deeply concerning and creates a lack of certainty, both for those people desperately looking to access the housing market, and for local housebuilders looking to deliver the high-quality housing that their local communities need.”
Help to Buy
Doughty maintains the best action those in power can take is to strengthen the routes to homeownership, especially for FTBs.
Whether one liked the scheme or not, there’s no questioning the impact Help to Buy had in boosting housebuilding and generating new-build demand. It would be great to see a high-profile scheme like this return, he thinks.
“Schemes such as Shared Ownership, First Homes and Deposit Unlock, as well as in-house schemes from developers, have helped fill the gap left by Help to Buy,” says Doughty.
We should build up, rather than out, as they do in other European cities
“Increasing people’s awareness of these schemes would be incredibly valuable too, especially as borrowers navigate tougher affordability in a higher interest environment.”
Access Financial Services CEO Karl Wilkinson believes more lateral thinking is called for.
“It is essential that we escalate development in certain areas. Ideally this will happen closer to town centres. One way of doing this is by building up rather than out, as they do in other European cities.
“While major cities in Europe are expanding vertically, the UK predominantly focuses on building detached or semi-detached houses. We need flexibility to modify plans, such as allowing four-storey buildings to extend to 12 storeys.”
Housebuilding initiatives aside, what recent product innovation can the mortgage sector point to for FTBs?
Earlier this year, Skipton Building Society launched a 100% home loan exclusively for renters. It referred to the product as a “revolutionary” way to help people out of a rent trap and into homeownership. But take-up was low.
The government needs to set out a clear plan for housebuilding to demonstrate that it is committed to substantially increasing supply
Sphere Financial Services director Nicola Huxley says the biggest shame about the Skipton product was the timing of its launch. Interest rates had got so high that the ‘maths’ compared to house prices was tricky, if not impossible.
“But it also needed a boost, with letting agents and mortgage advisers working together. Using this as a pathway together for FTBs to use in the future — it’s not the wrong idea, it just needs an extra dimension,” says Huxley.
She believes other ideas need looking at.
“I’d love a Help to Buy deposit option that is available for any house — maybe only 10% or 15%. If it is held in equity, why does it need to be new-build only? The theory works regardless.
“If we help FTBs and move the market as a whole, developers and the building industry will benefit too.”
Increasing people’s awareness of support schemes would be incredibly valuable
Huxley adds: “We are not ‘inflating’ prices in one area of the market or location. It will help FTBs make the first step, but will benefit the whole market.”
Crisis management
Leeds Building Society CEO Richard Fearon agrees that action is needed immediately to deal with what is already a crisis at the first rung of the property ladder.
“More than a decade of low interest rates has papered over the cracks in the housing market. It has masked a growing gap, between people with the ability, or family help, to build ever-higher deposits and stretch their repayments, and those who cannot.
“If left unaddressed, the gap will become a chasm. In the next five years the number of aspiring home-owners priced out of the market could be enough to fill a city bigger than Coventry.”
The housing market in this country is in crisis and has been for a long time. The lack of a visible government plan to address this is deeply concerning
In terms of urgent measures to support and empower FTBs, Fearon calls for the restoration of mandatory housing targets and the introduction of targets for affordable housing in local authorities; additional affordable routes to homeownership, with renters’ reform to provide greater protection for those saving for a deposit; support for a well-managed and regulated build-to-rent sector; and increased bridges to ownership, such as shared ownership.
Finally, he proposes reform of the Lifetime Isa scheme to reflect rising house prices, and new measures to allow people to build and improve credit scores by including rental payments.
Fearon concludes: “We risk creating a lost generation of FTBs – a terrible scar on the face of a country that prides itself on people’s ability to own a home, create roots in their community and prosper as a result.
“We need to develop a long-term plan before things get even worse: building more homes of all types, increasing affordable routes to homeownership and supporting people to save for their deposit.”
In five years the number of aspiring owners priced out of the market could be enough to fill a city bigger than Coventry
Right now, none of these elements are aligned, as Huxley sums up: “We don’t have any new-build FTB developments in our area [Whaley Bridge, Derbyshire]. Most of the new-build houses are well over £300,000 and offer no FTB options.
“Builders, banks and the government need to create a scheme for FTBs so they can buy the homes from the people who want to buy the ‘next’ new-build houses — the ones the developers want to build.”
This article featured in the October 2023 edition of MS.
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