The news yesterday that home ownership has fallen to its lowest level for 30 years came as no surprise to me, having worked in the industry for nigh on 40 years and with two children, one just on the property ladder and one still saving hard.
Calling for more homes to be built is not the entire answer to the problem. There is no point in building more and more new-homes when our children can’t afford the massive up-front deposit nor the monthly mortgage repayments. It’s a bit like telling Rolls Royce to knock out more cars, whilst I’d quite like a Rolls or a Bentley – if I can’t afford one then it doesn’t matter how many there are on the market.
Successive governments have allowed property in the UK to be used as a lucrative investment for overseas buyers and buy to let Landlords. This has forced up prices and kept them rising at a much faster rate than salaries. The recent increase in Stamp Duty and the removal of tax relief on mortgages for buy to let landlords may slow this trend but with interest rates low and house prices and rents booming it is unlikely to make much of a difference.
The problem is that lenders have allowed mortgage products to stagnate. They haven’t kept abreast of the times, preferring to play it safe and compete with each other on interest rates alone. Currently first time buyers have to find a 10% deposit and with the average UK house price at £211,230.00 that means saving a huge deposit of £21,000 which with legal fees and stamp duty, mortgage arrangement and removal costs realistically means that a first time buyer needs to save around £25,000 to get on the property ladder.
Even if that hurdle can be overcome by diligent saving and help from the bank of Mum and Dad, first time buyers still need to be able to qualify for a mortgage and afford the monthly mortgage repayments on a £190,000 loan.
Typically, lenders will lend 3 x joint salary over a 25 – 30 year period. This means that a first time buyer needs to be earning in excess of £63,000 individually or jointly to qualify. That is far in excess of the average UK salary of £26,000, which means having to find an even bigger deposit to make up the shortfall.
Mortgage lending products are woefully out of date and the government needs to work with lenders and insurance companies to provide new products so that first time buyers can afford to buy in the first place and keep up their mortgage repayments in the second place.
We are all now expected to work until we are in our late 60’s so why can’t mortgage loans be extended over a longer period of say 40 or even 50 years? Doing this would halve the current monthly mortgage repayments.
Lenders should be encouraged to offer 100% mortgages again, these could be backed by insurance guarantee premiums and mortgage protection products that are designed to help buyers if they lose their income due to illness or redundancy. The insurance products would have to be vetted to ensure they do actually pay out when needed and were sold responsibly.
With no up-front deposit to find and with much more affordable monthly payments our children and their children would have a chance of home-ownership and a stake in their future and the future of the UK.