First-time buyers face something of a watershed moment in mid-2022. All around them is bad news.
Interest rates are rising, the cost of living crisis continues to bite, house prices are wobbling and the Government’s Help to Buy scheme, which has helped so many without large deposits purchase their first home since its launch in 2013, is being wound up, and will close to new applications from October 31.
Affordability remains the biggest single barrier to home ownership, and a massive challenge for both buyers and housebuilders.
Bank of Mum and Dad behind two thirds of London home buys
A heavy reliance on the Bank of Mum and Dad remains a key motif of the starter home market.
Mortgage analysts Twenty7Tec found that in May almost two thirds (64.4per cent) of all first-time mortgages awarded in London involved a family gift, up from 62.5 per cent a year ago.
And many baby boomers are taking on considerable risk to help the younger generation on to the ladder.
“Parents helping their children to get their foot on the property ladder continues to be commonplace, with many remortgaging or, indeed, mortgaging the family home for the first time to help generate deposits,” said Peter Krelle, land and new homes director at Barnard Marcus.
What will replace Help to Buy?
For nearly 10 years, many buyers who can’t dip into family money have relied on Help to Buy instead, using a government equity loan of up to 40 per cent, a five per cent deposit and a mortgage to fund the purchase of their first home.
The scheme has supported an astonishing 31.4 per cent of all new homes sales since its inception, and 36 per cent in the three years to last year, according to research by Savills.
Now that Help to Buy is being phased out, the Government is clearly hoping lenders will step into the gap by offering a wider range of 95 per cent mortgage deals.
Halifax, Britain’s biggest lender, has done just that by cutting the minimum deposit requirement for new houses to five per cent.
Others are likely to follow suit, not least because lenders will soon have to meet quotas for the proportion of mortgages offered on energy-efficient homes (those with an Energy Performance Certificate of at least “C”). Few older properties will make the eco-grade.
Some buyers will make use of shared ownership as an alternative to Help to Buy, and there is also the Government-approved First Homes scheme which allows developers to offer 30 per cent discounts on homes sold to first-time buyers.
The scheme has its limitations. The price caps are not generous – up to £250,000 in England, or £420,000 in London – and these homes are often ringfenced for key workers or those already living in an area.
But when the property is sold it must go to another first-time buyer, offering an opportunity for younger first-time buyers to get on to the ladder, too.
“We are currently working with a smaller firm, Cleanslate, who are in discussions with Homes England to trial the First Homes scheme at a couple of their home counties developments,” said Ben Babington, director of the development consultancy Trilogy.
“Not only could this be a great way of bridging the gap left by Help to Buy, but it will also release ‘new homes’ back into the second-hand market for the next generation of first-time buyers.”
Housebuilders will also have to help themselves, by finding creative ways to assist their buyers with funding.
An early example of this is the Deposit Unlock scheme. It was launched last year by a consortium of major housebuilders and indemnifies first-time buyers’ mortgages at a range of developments.