In 2007, the housing market was still a free-for-all, a raucous, out-of-control party with mortgage lenders playing the role of hosts.
Then, five years ago this weekend, Northern Rock imploded and the music stopped. It may since have started up again, but lenders still have control of the volume button.
The noughties housing market was a bubble that needed to burst, if just to remove Kirsty Allsopp and all the other insufferable property obsessives from the public eye. For that we should all be grateful.
It’s about the only silver lining, though. If you knew five years ago that the housing market would still not have recovered by 2012 you could have imagined that at least it would have become a more realistic market.
In other words, house prices would have fallen further than they have; bad news for homeowners – grim for some – but precisely what the market needed.
That would have allowed for a natural readjustment, taking prices in line with earnings and putting home ownership within reach of those able to save a few grand.
We’re still waiting for prices to fall and it may happen. It certainly needs to. In a slow housing market, the Halifax and Nationwide continue to report minuscule average price movements every month, figures that are meaningless.
So where does that leave first-time buyers? In Scotland, the average would-be buyer thinks they’ll be aged 40 by the time they get their first home, according to a survey by Post Office mortgages.
Deposits are the main obstacle, unsurprisingly. Council of Mortgage Lenders data show that the typical first-time buyer in Scotland currently needs a deposit of 20 per cent of the property value – .£31,200, based on the Registers of Scotland average house price of £156, 410.
Of course it’s not deposits that are the main obstacle, but the lenders that are demanding them. They have valid reasons for being wary of buyers with low deposits, not least rules that force them to set aside more capital for high loan-to-value mortgages.
One of the aims of the Scottish government’s MI New Home initiative, unveiled this week, is to circumvent that problem.
By offering guarantees on lending to borrowers with deposits of just 5 per cent, the Scottish government hopes to encourage more lenders to open their doors to first-time buyers. It’s been months in the making, yet only Royal Bank of Scotland and Nationwide are on board at the outset. Bank of Scotland/Halifax are set to follow.
The Nationwide’s rates are competitive, although the cheapest first-time buyer deals remain twice as expensive as those for borrowers with equity or deposits of around 40 per cent.
That most lenders have steered clear says a lot – and may well prove the undoing of the scheme. Lenders just don’t want to lend to borrowers with small deposits, even with government guarantees attached. They’ve been risk-averse for five years now and that isn’t going to change anytime soon.
They remain worried that borrowers will be in deep trouble when interest rates rise, with some justification. They’re also worried that house prices could fall further, adding to the risk they’re taking.
The Funding for Lending scheme was designed to address their concerns, but they’ve primarily used it to line their pockets, to the surprise of precisely no one.
Yes, there are more mortgages available for first-time buyers than they have been for a while, with building societies leading the way. It doesn’t mean they’re competitive, however, and it’s not easy for borrowers to get their hands on them. Marketing 95 per cent LTV mortgages and actually providing them are too very different things. Brokers report that lenders are as picky as ever, turning down applicants for the most trivial reasons.
MI New Home is as close as we’ve come to a solution that seeks to overcome the main hurdles. Shared equity initiatives have come and gone with little impact, but there’s a reasonable hope that MI New Home will enjoy some success.
It may also prove counterproductive, however, perhaps by artificially inflating or supporting Scottish house prices when they need to come down. That’s the last thing first-time buyers need. Conversely, of course, the idea is that by stimulating housebuilding, the supply of affordable homes will improve. That would ease the undersupply problem that’s helping prevent prices from falling further.
In the end though, it comes down to lenders. And until they’re in the mood to take a little more risk, no scheme or initiative is going to really get the market moving.
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