Phil Whitehouse: Blog

Tuesday 21st June 2011

The housing conundrum continues. How to help first-time buyers? How to bridge the supply gap? How to balance competition with risk? How to interpret interest and swap rates?

The questions go on and on, the problem being that the answers for many potential borrowers, and providers for that matter, remain difficult to come by.

Whilst the remortgage market is currently performing admirably under sustained funding and risk constraints, one of the great cornerstones of any burgeoning mortgage market, the first-time buying arena, continues to struggle.

We don’t need to chart all the history as to why this is the case, but suffice to say that this is a valuable proportion of the UK population that we must not forget about. On a positive note it is improving very slightly, but it’s obvious that major hurdles remain for many potential borrowers.

The latest Halifax housing market confidence tracker shows that 50% of consumers think that raising a deposit is a major barrier to home buying, while 27% think the general availability of mortgages is one of the main obstacles to buying a property.

The survey also shows more Brits expect house prices to rise rather than fall over the next 12 months: one in three predicted an increase in prices while 23% expect a fall. The majority also think that any house price movement over the next year will be relatively small with more than half (57%) expecting any change to be between plus-5% and minus-5%.

So what does this tell us? Sadly, nothing that we didn’t really already know, but there is one thing for sure and it’s certainly not only deposits and mortgage availability that continue to hold potential homeowners back.

The research also reveals consumers’  concerns about the outlook for the economy with 26% of respondents expecting their personal financial circumstances to worsen over the next few months and a further 54% anticipating no improvement.

Furthermore, 52% of those asked cited worries about job security as one of the main hurdles to buying property, while household finances (31%) and concerns about rising interest rates (22%) also ranked highly as barriers to purchasing a house.

The latest Royal Institution of Chartered Surveyors (RICS) UK Housing Market Survey agrees that a combination of fears over the economy and the availability of mortgage finance were the main factors that continued to depress housing activity in May.

RICS says the hoped-for spring bounce in the housing market failed to occur in May, with newly-agreed sales down from April’s level. The average number of completed sales per surveyor decreased by 3.4% in the three months to May, dropping to 14.7, its lowest level since January.

But the good news is that homes in England and Wales are said to have become increasingly affordable, with prices rising less than 1% since April 2007 as average wages increased 13.7%. This is according to LSL Property Services and Acadametrics.

They found that house prices have remained almost stagnant since March, with the average property prices rising just £20 to £223,971 from the end of April to the end of May.

However, affordability is certainly something of a double-edged sword and there certainly remains a gulf in the two forms of affordability, by which I mean the ability to get/take further steps on the property ladder and the measure of affordability with regard to current levels of mortgage payments.

We have some potential borrowers who can afford to buy and maintain a property but can’t get access to sufficient funding due to minor credit blips in the past – although this is slowly but surely getting better and there are some great complex prime specialists out there.

We have those that can afford potential mortgage repayments because of some of the great rates currently on offer but who haven’t got the capital to raise a sufficient deposit. And we have those who could be better off remortgaging but have not got enough equity or spare money to close the equity gap in order to make the most of the current remortgage and historically low interest rate arena.

The obvious answer is the stretching of LTV levels and the strengthening of the near prime market, but these are not short-term answers that can be sought at the click of the fingers.

Unfortunately there is no answer for first-time buyers on the immediate horizon but there is little doubt that the industry is slowly moving in the right direction.

We can only hope that those potential borrowers of the future will be able to sufficiently combat any economic issues they may face to try and secure and even boost their deposit pot in the meantime until this first-time buyer gap can be bridged. 

Phil Whitehouse is head of The Mortgage Alliance (TMA)