First-time buyers face a cocktail of woes as small deposit mortgages fall, house prices rise and rents tip £1,000
By Sarah Davidson For www.Thisismoney.co.uk
- First-time buyers face an increasingly desperate future as the average cost of a first home rises, rents tip the £1,000 a month mark and lenders withdraw small deposit mortgages.
- Research from AmTrust and Moneyfacts shows the average cost of a first-time buyer home hit £161,912 in June - the highest level seen in 2016.
- At the same time the number of high loan-to-value mortgage products has fallen for two consecutive months since the UK voted to leave the European Union.
Mortgage lending at 95 per cent LTV accounted for just 2.5 per cent of total lending in Q1 2016, down from 3 per cent the previous quarter and down from 3.5 per cent year-on-year.
This is a fall from a peak of 4.2 peak in the second quarter of 2014 when the Help to Buy mortgage guarantee scheme was first introduced.
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And, to heap pressure on first-time buyers' already constrained finances, separate research from peer-to-peer lender Landbay suggests the average rent for a one-bed property in the UK hit £1,010 in August - now over two thirds' of the average disposable income of £1,497.
Simon Crone, of mortgage risk specialist AmTrust International, said: 'These findings are a further worrying indication of decline, particularly concerning for first-time buyers who are typically unable to save large deposit sums and rely on high LTV lending.
'It also suggests that while lenders have appetite for lending in general, they are more focused on lending to those customers with larger deposits.'
Early indications suggest that Brexit has not prevented the upward march of house prices for first-time buyers, making high loan-to-value critical to those hoping to take their first step on to the house ladder.
Bank of England governor Mark Carney cut the base rate in August to help homeowners
Last week Halifax published its monthly house price index, which showed the annual rate of growth slowed to 6.9 per cent in August, down from 8.4 per cent in July and June.
The most recent Nationwide index meanwhile reported annual house price growth rising from 5.1 per cent in June to 5.2 per cent July and to 5.6 per cent in August.
Crone added: 'In the wake of uncertainty caused by June's vote for Brexit it is concerning, but perhaps not surprising, to see the number of available products for those with small deposits going into decline at a time when lender appetite for risk looks set to decrease.
'Saving a large deposit remains the biggest obstacle to home ownership, made harder for hopeful buyers by high rental costs and stagnant incomes. High LTV lending is therefore invaluable to many first-time buyers and their dreams of home-ownership.'
Tenants saving up for a house face a triple challenge: trying to catch up with the pace of house price inflation; more and more of their income spent on rent; and record low interest rates limiting their ability to save money
Landbay's research found that overall, rents across the UK grew by a modest 0.12 per cent in August, taking annual growth to 1.83 per cent. Rents grew across all regions bar London, where rents were broadly flat, dipping by -0.01 per cent. The average UK rent across all property sizes is now £1,186, with the average in London at £1,892, and the rest of the UK £745 per month.
John Goodall, chief executive of Landbay said: 'Rental properties have become an important stepping stone for first-time buyers saving up for their own home.
'However, with a rapidly growing population and a chronic undersupply of new houses, property prices are growing even further out of reach for aspiring homeowners. With rents climbing too, even in the face of Brexit uncertainty, tenants saving up for a house face a triple challenge in trying to catch up with the pace of house price inflation, with more and more of their income spent on rent, and record low interest rates limiting their ability to save money.'
Help to Buy - but not for long
The availability of loans for those with small deposits received a much-needed boost when the Government introduced the Help to Buy mortgage guarantee scheme yet, while mortgage lending is increasing, lenders now appear increasingly focused on lending to borrowers with greater deposits.
This scheme, one of two offered under the Help to Buy title, allows lenders to offer 95 per cent mortgages to borrowers with the Government effectively insuring the risky part of the debt so lenders themselves aren't exposed if house prices fall.
However, it is due to be shelved at the end of this year.
Charlotte Nelson, of personal finance site Moneyfacts, said: 'It is still unknown what effect the Help to Buy mortgage guarantee scheme ending this year will have, but the number of products at 95 per cent LTV is likely to dwindle yet again, providing a further blow to borrowers with small deposits who were getting accustomed to the plethora of choice they had.'