House prices a nightmare for first-time buyers

One in five people aged 20 to 45 who haven't bought a home say it's 'virtually impossible' for first-time buyers to secure a mortgage. Picture: Jane Barlow
One in five people aged 20 to 45 who haven't bought a home say it's 'virtually impossible' for first-time buyers to secure a mortgage. Picture: Jane Barlow
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End of government support and buy-to-let boom also conspire to thwart attempts to climb on to property ladder, writes Jeff Salway

THE obstacles are once again piling up for first-time buyers seeking a foothold on the property ladder as one expert warns home ownership is becoming an “unachievable pipe dream”.

‘One of the key difficulties is the lack of affordable housing’

The prospects for first-time buyers with modest incomes have also suffered a blow with the closure of a key Scottish Government support scheme, while a buy-to-let resurgence threatens to squeeze first-timers out of the market.

The difficulties first-time buyers face in an otherwise upbeat Scottish property market were highlighted in a report published last week on housing policy north of the Border.

A Blueprint For Scotland’s Future, published by the Independent Commission on Housing and Wellbeing, warned that the country’s “future wellbeing” is at risk unless there is a “dramatic increase” in housebuilding. It called for 23,000 new homes a year to be built, including 9,000 affordable homes.

Robert Black, chair of the commission, added: “With an averagely priced house now costing about five times the average annual income, owning your own home is becoming an unachievable pipe dream for many people in Scotland, especially young adults and families.”

One in five people aged 20 to 45 who haven’t yet bought their own home believe it’s “virtually impossible” for first-time buyers to secure a mortgage, according to the recent Generation Rent report from Halifax.

A quarter of young people in Scotland aged 20 to 34 live with their parents, as difficulties getting a mortgage have been compounded by rising rental costs and stagnant wages, it found.

One avenue of assistance to first-time buyers, the help-to-buy scheme, closed last month. It had enabled buyers to purchase new-builds costing up to £250,000 from participating builders with the help of an equity stake from the Scottish Government. Homes for Scotland said the country’s housing market would be left in “limbo” by the early closure of the scheme, designed to help first timers overcome the difficulty in meeting lender deposit requirements.

“The end of the scheme was unwelcome news for first-time buyers looking to gain a foothold on to the property ladder,” said Ian McGrail, director of Scottish broker First Mortgage. “Prospective borrowers will therefore need to look to put down larger deposits or simply become reliant on the traditional higher loan-to-value (LTV) market.”

But perhaps the biggest concern for first-time buyers is a recent spike in Scottish house prices. The 14.6 per cent rise in average prices in the year to the end of March was the biggest jump since 2007, said the Office for National Statistics.

The increase was almost double the rate south of the Border and outpaced even London. While the figure was driven up partly by a rush to snap up high-end properties before the Scottish Land and Building Transactions Tax took effect in April, prices are expected to climb even higher as demand outstrips supply.

“One of the key difficulties confronting first-time buyers is the lack of affordable housing as house prices continue to rise in relation to wages, which makes securing a large mortgage even harder,” said McGrail. “This has resulted in a drop in confidence levels.”

First-time buyers also face a threat from buy-to-let landlords. Buy-to-let lending increased almost 30 per cent in the first three months of this year, compared with the corresponding period a year earlier, according to Council of Mortgage Lenders figures.

Buy-to-let lenders say demand has increased rapidly in recent months, not least from people taking advantage of new rules introduced in April making it easier to access their pension savings.

It’s not all gloom and doom for first-time buyers, however. Those saving for a deposit are set for a boost this autumn with the launch of the tax-free help-to-buy Isa, through which the UK government will top up qualifying accounts by up to £3,000.

With the average deposit on a first-time buyer loan currently around £25,000, the scheme will have a limited impact, said McGrail. “However, a couple who partake in it will be able to obtain that amount much more promptly or increase the total they can lay down as a deposit with the help of a government contribution of up to £6,000,” he pointed out.

The chances of getting a deposit have also improved with the launch in recent months of a raft of new deals for first-time buyers. There are now 170 mortgages available at 95 per cent LTV, double the number of three years ago, according to Moneysupermarket. The average rate on those loans has fallen by 1.04 per cent to 4.72 per cent, although mortgage fees have risen sharply over the same time (particularly on the lowest rates).

“There are some notable lenders currently catering for the needs of first-time buyers,” said McGrail. He pointed to the 95 per cent LTV loans offered by Airdrie Savings Bank at a headline rate of 4.19 per cent (with a £995 fee) and the 4.49 per cent rate from Woolwich (with no fee).

“Alternatively, lenders such as Bank of Scotland/Halifax and Nationwide are offering 1 per cent cashback deals, which provide good additional support to those looking to set up a home for the very first time.”