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Bank of England
Lloyds Banking Group
Royal Institute of Chartered Surveyors
First Time Buyers
Council of Mortgage Lenders
House Builders Federation
Leeds Building Society
Funding for Lending
Shared Ownership Schemes
With a report from the House Builders Federation (HBF) revealing that saving a deposit for a home will now take the average first-time buyer ten years, it may seem as though the future isn't particularly bright for those waiting to get on the property ladder. In London, this waiting time is even longer, with people in the capital faced with a 24 year hiatus between deciding they want to buy a home of their own and actually being able to afford one. However, every cloud has a silver lining - sometimes you just have to look a bit more closely. So just what is this bright spot for first-time buyers? Stewart Baseley, HBF executive chairman, explained: "There is some light at the end of the tunnel and there are now several ways for people to buy with a more normal deposit. Government backed schemes such as Newbuy are offering real options for people looking to buy – or move home – and we are seeing more and more take advantage." While the motto for the property sector is undoubtedly "tread with caution", here are five reasons for first time buyers to be optimistic about the future. 1) Funding for Lending SchemeSince August 1st 2012, banks and building societies have been able to borrow from the Bank of England up to a period of four years against assets, such as business and mortgage loans. Known as the Funding for Lending Scheme, the programme will be in place until January 31st 2014 and is designed to encouraging a culture of lending. Financial institutions have been offered incentives to lower interest rates and increase the availability of business loans and mortgages. Under the new scheme, the idea is that "the more you lend the more you can borrow". Banks that increase their lending will also be able to pay the lowest fee on their borrowing. For first time buyers, this ultimately means that it may soon be easier for them to access finance, with banks and building societies being more flexible with mortgage criteria. 2) Other homeownership schemesThe government is also tackling the issue of homeownership in other ways, offering three schemes to enable people to get a foot on the property ladder. First Buy equity loans are specifically targeted and first time buyers and enable individuals to invest in a home with at least 80 per cent of the cost met by a mortgage and a deposit. The rest is paid for by the government and the house builder through an equity loan. This has the advantage of properties being in the name of the first time buyer, which enables the house to be sold at any time. However, the government and the house builder will get a share of the value when the property is sold on. If people choose not to move, they must begin to pay back the equity loan after 25 years. Shared Ownership Schemes are also designed to make it more affordable for first time buyers to get on the property ladder. This is run through housing associations and lets an individual buy a share of their home (between 25 per cent and 75 per cent of its value) and pay rent on the remaining part. A mortgage is still needed and the scheme works on a leasehold. The government is also promoting its NewBuy scheme, which enables a newly built home to be bought with a deposit of only five per cent. However, to qualify for such a scheme the home must be priced at GBP 500,000 or less, be the main home, and owned fully by the buyer in question. 3) Banks are realising they must lendBanks aren't exactly completely pro-lending at the moment, but they are slowly realising that they must act to ease the pressure on first time buyers. Leeds Building Society has recently reduced the rate on its two years fixed rate shared ownership mortgage and is now available up to 95 per cent borrower's share, by 0.70 per cent to 4.99 per cent. Lloyds Banking Group has also committed to lending GBP 6.5 billion to help customers take their first steps on the property ladder, with 60,000 people expected to benefit in 2013. Stephen Noakes, mortgage director at Lloyds Banking Group, commented: "Our range of products is continuing to make home ownership a reality for so many first time buyers. Through our unrivalled commitment to affordable housing and new build schemes through Halifax, and innovative products such as Lloyds TSB's Lend a Hand, we're offering real solutions for those with smaller deposits." 4) A "can-do" attitudeWhile the situation may feel hopeless, first time buyers can take comfort in knowing that the government, property industry and banking sectors are aware of the problem and are trying to fix it. In fact, countless reports have been produced to suggest ways forward and one is bound to stick - probably. The Royal Institute of Chartered Surveyors is just one body that has launched a commission to investigate how to deliver the right homes, in the right tenure and in the right places. Creating more housing stock in areas of high demand is just one option suggested to get out of the crisis. 5) Improvements have already startedIf first time buyers take solace in nothing else, they cannot deny that improvements have already begun. According to the Council of Mortgage Lenders, the number of loans taken out by those new to the property market reached the largest monthly total in November since the end of 2009. In the penultimate month of 2012, a total of 21,700 loans were advanced to first time buyers, worth a total of GBP 2.7 billion and representing an eight per cent rise month-on-month. This is also an impressive 24 per cent increase year-on-year. A word of caution... Yes, there are positive things going on in the property market at the moment, but in a volatile financial climate, it can all fall apart. Affordability is still a major issue and government schemes to incentivise first time buying could lead to negative equity if house prices fall any further.
Ultimately, investing in areas tipped for growth is vital if people want to keep hold of their money. It is also vital for buyers to think long term - do they really want to be tied to the government or house builders by borrowing from them? After all, owning your own property may be the dream, but it can soon turn into a nightmare.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.