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First-time property buyers caught between a mortgage deposit and a rental place

More than half the UK’s regions are now ‘blackspots’ for mortgage wannabes. Mark King looks at the knock-on effects for the entire market

Prospective homeowners continue to be forced out of the housing market, with “first-time buyer blackspots” covering seven out of 11 regions in the UK and half of all UK tenants expecting rents to rise in the next year.

According to property website Rightmove, only 23% of people who intend to purchase a property in the next 12 months are first-time buyers, when 40% is considered normal for a healthy housing market. This drops to 17.6% in the south-west and Wales and is below 20% in five other regions across England and Wales: Scotland, the south-east, East Anglia, East Midlands, Yorkshire and Humberside.

The website said the three top reasons were difficulties in raising a deposit (exacerbated by steep rental price increases); concerns over financial security (one in five first-time buyers said they were worried about meeting mortgage payments); and over-priced property values – a worrying seven out of 10 prospective first-time buyers told Rightmove they feel property is over-priced in their area.

The emergence of these blackspots, along with stalling wage growth, redundancies and stagnant mortgage approvals are pushing would-be buyers into the rental sector.

But in a report, to be published on Monday 29 August, Rightmove found more than half of people now renting expect their rent to be higher in 12 months’ time, with one in six of those believing it will rise by more than 10%. This comes on the back of a 4.2% rise in rents, according to LSL Property Services, over the year to the end of July, taking the monthly average to £705 (7.1% to £1,009 in London).

Despite rising rents, there is now more than twice as much rental demand for 12% fewer properties compared with April 2009, helping inflate the rental bubble.

Miles Shipside, director of Rightmove, said conditions for tenants continues to deteriorate, with inflation running at 4.4% and wage growth of 2.2%. He said: “Tenants’ pain is a landlord’s gain with a shortage of rental accommodation and continuing high demand further boosting landlords’ returns. The rental ceiling of what some tenants can afford appears to have some headroom left, despite disposable incomes being squeezed. While competition will help improve landlords’ rental returns, there are consequences to an over-inflated rental bubble.”

First-time buyers perform an essential function in the housing ladder by starting chains that help others to move. Shipside says this is now under threat: “The emergence of so many first-time buyer blackspots has serious implications not just for those who are unable to buy for the first time, but also housing markets in each of those regions. It is particularly bad news for first-time sellers, for example.”

Owner occupation rates peaked in 2003 at 70.9% after an 80-year period of growth, and have since declined to a level of to 67.4% in 2009-10 (the latest figures available). The growth in home ownership rates have now stalled, which is less an inevitable flattening out of a market that is close to its natural capacity and more a generational story that is not being told.

Matt Griffiths of first-time buyer website PricedOut said there is now a definite split in the age groups of those who own their own home. Between 1991 and 2009-10, owner occupation levels in the 16-24 age group fell 61% (36% to 14%), while owner occupation in the 25-34 group fell by 30% (67% to 47%). Home ownership in the 35-44 group also fell, by 14% (78% to 67%). But levels of owner occupation continued to rise in older groups. Between 1991 and 2009-10 the 65-74 group saw a 14% increase in home ownership (62% to 79%), while those aged over 75 saw home ownership rise by 38% (53% to 73%).

The percentage of young people getting a foothold on the housing ladder today is are clearly falling behind the number who managed it 20 years ago. Griffiths argues this decline is exacerbated by the growth of the private rented sector, with the rise of the buy-to-let market enabling those with existing housing wealth to “out-bid” potential first-time buyers for property.

The growth of the private rented sector is projected to continue to increase to 20% of households in 2020, according to the National Landlords Association, from 14% of households in 2008.

Griffiths says: “Unfortunately the unenviable position of generation rent is reinforced by the political dynamics of home ownership – older homeowners are a larger group, vote more and are much more vocal in defending their interests. Politicians therefore have been very reluctant to challenge the generational inequalities in the housing market and tiptoe round the problem.”

The statistics all indicate that government initiatives are desperately needed to help buyers get a foothold, but the FirstBuy scheme has been roundly criticised for assisting only a small number of first-time buyers.

“The government’s flagship first-time buyer scheme – FirstBuy – is a classic example of how to do close to nothing with maximum publicity,” Griffiths says. “It will only benefit 10,000 young people and will have no impact on the drivers creating generation rent. Nowhere is this more apparent than in the response to the credit crunch – where stopping house prices falling has been a major concern of government and the Bank of England. The pain of market readjustment is therefore now being felt primarily in the rental market – with younger people shouldering higher costs. Given this group was the major loser from the boom, this seems a bit unfair.

“Over the longer term, there appears to be a seriousness from some in the coalition to deal with lack of new homes via planning reform – and they will face stiff opposition from the grey vote even here. But the government seems to have implicitly accepted that, for the time being, there will be a lost generation of young homebuyers.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds