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Home > Market Research > Financial Services > An Analysis of First-time Buyers in the UK Mortgage market
Introduction
A decade of soaring house prices has priced first-time buyers (FTBs) out of the mortgage market. While 2008 has witnessed a significant fall in house prices, FTBs continue to find it difficult to get on the property ladder. This brief looks at the FTBs' issue, the aspirations of would-be FTBs and provides an overview of the latest government and lender initiatives for FTBs.
Scope
*Looks at the decline of FTBs in the UK mortgage market and the reasons behind this trend.
*Draws upon a Datamonitor online survey conducted among a sample of 2,250 non-homeowners to provide insight into their homeownership aspirations.
*Provides historical data from various sources including the CML, Nationwide, Halifax and the Communities and Local Government.
Highlights
FTBs have been forced to take higher mortgages to buy a property over the years; data from Communities and Local Government highlight that the average mortgage advance made to FTBs rose by 156.4% from £50,921 in 1998 to £130,565 in 2007.
With the credit crunch, the mortgage market has seen the disappearance of products primarily designed to help FTBs to become homeowners by decreasing the burden of having to come up with a significant deposit.
Financing the deposit by taking out unsecured credit (personal loan/credit card/overdraft) was mentioned by 21.6% of respondents. This suggests that FTBs still tend to overstretch themselves financially in fulfilling their aspiration to homeownership.
Reasons to Purchase
*Gain insight into the intentions of would-be FTBs.
*Learn about the latest government and lender incentives to assist FTBs.
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Table of Contents
DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
First-time buyers are the casualties of the house price boom 2
House prices grew by more than 230% over the period 1996-2007 2
First-time buyers have found their ability to buy a property significantly reduced in a soaring house price environment 3
FTBs' participation in the UK housing market has dropped significantly 4
The importance of first-time buyers in the UK mortgage market must not be underestimated 5
Buying a property remains problematic for first-time buyers despite house prices falling in 2008 6
Properties still remain unaffordable for FTBs in the current market conditions 6
The one-year stamp duty holiday is not enough 6
Many potential first-time buyers have little hope of ever buying a property 7
The most mentioned factor stopping prospective buyers to get on the property ladder is 'property is too expensive' 7
Homeownership remains a major goal for the UK population 8
The majority of the non-homeowners surveyed are willing to make sacrifices in order to possess their own home 9
The majority of the would-be homeowners surveyed are planning to fund their deposits out of their personal savings 10
Nearly a third of would-be FTBs believe that it would be very hard for them to service a mortgage for the next five years 11
Incentives for first-time buyers are limited in the current difficult market climate 12
Unsurprisingly, the majority of would-be FTBs surveyed consider mortgage products requiring a low or no deposit as being of the most help to buy their first home 12
A handful of lenders, such as Halifax and Abbey, have introduced savings-related incentives for FTBs 13
The government is considering a tax-relief savings account for FTBs 14
The government has improved its shared equity schemes aimed at FTBs in 2008 14
APPENDIX 15
Supplementary data 15
Definitions 19
Bank of England base rate 19
CAGR 19
Gross advances 19
Loan-to-value (LTV) 20
Methodology 20
Further reading 20
Ask the analyst 20
Datamonitor consulting 20
Disclaimer 20
List of Tables
Table 1: FTBs' house price to earnings ratio and index of mortgage repayments as a % of take home pay, 1996-2007 15
Table 2: Number of loans accounting for FTBs, 1988-2007 16
Table 3: How long do you think it will be until you buy your first home? 16
Table 4: What is stopping you from purchasing property? 17
Table 5: Why are you looking to purchase a property? 17
Table 6: In order to own your home what would you expect to sacrifice? 18
Table 7: How are you planning to finance the deposit to buy your property? 18
Table 8: How difficult do you think it would be for you to service a mortgage for the next five years? 19
Table 9: Which of the following would help you most to buy your first property? 19
List of Figures
Figure 1: The average UK house price has more than trebled during the period 1996-2007 3
Figure 2: FTBs' affordability has reduced considerably as both the ratio of house price to earnings and mortgage payments as a % of take home pay have risen sharply in the last decade 4
Figure 3: Loans advanced to FTBs accounted for only 35.2% of total loans for house purchase in 2007 5
Figure 4: More than a third of the respondents cannot imagine of ever buying a property, August 2008 7
Figure 5: More than 60% of would-be FTBs interviewed mentioned the fact that property is too expensive as a reason for stopping them from buying a house, August 2008 8
Figure 6: 48.4% stated 'to get on the property ladder' as a reason for looking to purchase a property, August 2008 9
Figure 7: An overwhelming majority of the surveyed participants would make sacrifices in order to possess their own home, August 2008 10
Figure 8: Prospective buyers are planning to fund their deposits mostly out of their personal savings, August 2008 11
Figure 9: 65.4% of would-be FTBs believe it would be difficult for them to service a mortgage for the next five years, August 2008 12
Figure 10: 60.6% of the survey participants stated 'low or no deposit' products as being of the most help to buy their first property, August 2008 13
For full details, please email keithw@cmsinfo.com
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