tony's blog

Friday, December 3, 2010

What now for first-time buyers?

In issue 23 of News and Views published by the CML it was suggested that the contraction in UK mortgage lending since 2007 has been the most severe on record. Furthermore, between 2007 and 2010, as many as 800,000 potential first-time buyers had been effectively frozen out of the market. Lending criteria has tightened significantly for the first time buyer with the average LTV for this group of borrowers falling from 90% to 75%.This trend seems set to continue with the major lenders choosing to concentrate on less risk adverse borrowers who have greater equity in their property.

Meanwhile, rents are continuing to be pushed up as more people turn to renting a home instead of buying one. RICS said that demand from would-be renters was rising while the supply of new homes to let was falling.

So what is to become of this disenfranchised group? Are they doomed to languish in their parents’ homes until conditions improve? Is getting the deposit they so desperately need now a matter of long-term saving or pleading for handouts from kindly relatives?

It seems to me that more needs to be done to help this group of borrowers. Traditionally their role in establishing a healthy mortgage market is crucial so they shouldn’t be ignored. If lenders are doing their job and assessing affordability on an individual basis then surely some tranche of their lending allocation can be provided specifically for first time buyers. Then again, market share is no longer the problem so why should they want to do this without incentive?

Maybe the market needs to think again.