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Average Age of First Time Buyers Escalating

September 11, 2010

A recent report has suggested that the average age of first time buyers climbing onto the property ladder without parental support is increasing. The average age of un-assisted first time buyers, which has already increased from 34 to 37 over the previous 3 years, is anticipated to raise more – potentially to as much as 43 years of age for the emerging era of first time buyers, according to research carried out by the National Housing Association.

This illustrates the issues facing first time buyers with the high minimum deposit demands that currently exist to be able to secure first time buyer mortgages, with only a few deals on the market that require a deposit of 10% – and the majority needing a minimum of 15% deposit.

There has also been a distinct tightening of first time buyer mortgage lending requirements, even for those that can afford to pay a 10%+ deposit – with mortgage lenders being much more choosy regarding who they lend money to, prefering to focus on either maintaining existing mortgage customers, or attracting prime clients out of other mortgage lenders with attractive low risk remortgage deals at low loan to values.

In some senses this is good – mortgage lenders are taking less risks and are consequently more financially stable than they had been prior to ‘the credit crunch’. But, ironically, the looser mortgage lending requirements of the past is what lead to the booming housing market. The restricted criteria in the present is producing the housing market stagnation we are currently suffering from.

Redrow’s Steve Morgan highlighted the problems first time buyers face when trying to obtain mortgage funding, laying the blame firmly at the door of the European Regulator, rather than UK Mortgage Lenders. “We are not blaming the banks,” he said, “this comes down to Basel II and the restrictions on their balance sheets”.

He has called on the UK Coallition Government to either provide tax breaks for first time buyers, or to set up a mortgage insurance indemnity scheme for first time buyers, which would help enable higher loan-to-value lending (lower deposit requirements).

In the past, a number of insurance companies provided Mortgage Indemnity Guarantee (M.I.G.) – an insurance that protected mortgage lenders against any loss they may incur in the event of a property repossession if a mortgage borrower defaults on their payments.

It is in some ways a questionable form of insurance – as it is paid for by ‘the borrower’, but in fact covers ‘the lender’, not the borrower. However, like it or not – it did make it possible for mortgage lenders to provide higher loan to value mortgages, which clearly benefits first time buyers wishing to jump onto the property ladder.

I am sure first time buyers would be happy to meet the cost of this kind of insurance, if it would enable them to secure a mortgage with a reduced deposit requirement. Many prospective first time buyers are comfortably affording to rent property – and would love to own a home with a mortgage payment at a similar level to their monthly rent. But they are simply unable within a reasonable timescale, to save such a large deposit as is now generally required to even be considered for first time buyer mortgages.

However, since the oncoming of the ‘credit crunch’, and the resultant stagnation of the UK housing market – many of the insurance providers who previously offered M.I.G. insurance have withdrawn from the market due to the increased risk of mortgage default and property repossession. The insurance providers left in the market are, I suspect, charging more for M.I.G. insurance and covering less in the event of a claim – making M.I.G. insurance a less appealing proposition to mortgage lenders.

The Basel II rules imposed on lenders has meant that lenders must set aside funds to protect against higher loan to value mortgages – putting aside £1 for each £1 they lend on mortgages over 75% of the property value. They are having to find double the amount of money for any mortgage that stretches above 75% loan to value – which of course naturally makes this type of mortgage a much less appealing prospect for the mortgage lender – leading to them diverting their interest away from this important portion of the market.

On a more positive note, stories in the news over the last week demonstrated how UK Banks and Building Societies are well placed in regard to the higher capital adequacy rules that have been imposed since the ‘credit crunch’.

Ever the optimist, I suspect that within the next 24 months we will start to see a welcome return to greater competition for first time buyer mortgages, leading to the advancement of solutions to help first time buyers reach onto the property ladder. This will be welcome news for the UK property market and the economy as a whole – as first time buyers are the lifeblood of the UK property market.

We must establish sensible mortgage lending strategies in the UK – that make it possible for the more viable prospective first time buyers who can demonstrate a level of income and job stability, to reach onto the property ladder with a long term view to home ownership. Lets not return to the lending practices of the past – no one wants that. But lets search for methods to move the present position forwards for the benefit of all parties – first time buyers, financial institutions, and the economy as a whole.

11th September 2010

Author Richard Best – CeMAP (The Best Advice Network Ltd)

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