I was recently asked to give my predictions for the property market in 2011 and this made me think again about the importance of first time buyers to this market. I was particularly disappointed to see the results of the summit held by the Housing Minister, Grant Shapps, on 15 February. The outcome of the summit was summed up by the Council of Mortgage Lenders who said "its good to see Ministers taking the initiative to discuss how we can look to improve market conditions for first time buyers but no-one will be surprised to learn that there is no simple quick fix for a market that has changed fundamentally since the credit crunch."
I think this is a very disappointing outcome. Recent statistics show that the average age of the first time buyer is now 37. A recent survey conducted by Rightmove showed that 20.9% of current purchasers are first time buyers. For a normal moving property market, this figure needs to be in excess of 40% and until we get this flexibility and liquidity into the market, the housing market will not move to its full extent and until that happens the economy will not fully stabilise.
I would advise that I have today written to Grant Shapps detailing my earlier proposals to help first time buyers:-
- The Government, via Project Merlin, should instruct Banks to lend first time buyers up to 95% loan to value with the Government guaranteeing 10% of the loan. This means that in effect the Banks are only risking 85% borrowing. This sum could be limited by the Government to the £800 million pounds extra raised via the additional Bank tax and once this fund has been used, the scheme would come to an end. The Government would in fact not be spending any money unless these guarantees went bad and if the properties were sold for less than 95% of their original value. Both unlikely if we get the housing market moving.
- The Government should look at, via the FSA, agreeing with banks that they can lend 95%-100% loan to value mortgages – with correct multipliers and income checks – and also introducing a compulsory mortgage insurance guarantee scheme. This is an insurance policy that would cover the banks should the mortgage go wrong and the property repossessed and sold for less than the original loan. Originally very popular in the early to mid 90's but phased out by Banks in the heady days of 2000's.
- The Government should look at extra funding for housing associations. This would encourage the building of more low to medium range houses.
- There should be tax breaks for developers and a reduction in VAT for people carrying out property development.
- Finally, there should be limited pension relief for people purchasing investment properties – limited to a certain number of properties purchased within say a 12 month time frame. This will again assist the housing market both by getting more rented property on the market thus cooling the overheating rental market and also taking up some of the oversupply of low end properties currently languishing on the market.
If these points were implemented with immediate effect you would see the appropriate number of first time buyers coming into the housing market causing the housing market to stabilise increasing the Banks confidence and allowing the Banks to lend more freely causing further stability of the housing market and strengthening the current fragile economic recovery. These could all be implemented at very limited costs. I shall let you know as soon as I receive a response to my letter.
ps Since dictating this blog, I have been in discussions with a client who has been involved in the property market in the United States of America. His report was that the housing market in America is starting to stabilise and that the Banks there are in fact lending 95% and 97% loan to value mortgages. The word on the street is that there is now an expected housing market recovery for summer 2011. My feeling is that with the Presidential election in the summer of 2012, the housing market will start to improve by autumn 2011 with economic recovery in America in full swing by January 2012. Thus being the perfect launch pad for a President seeking re-election. Let's hope there is a knock-on effect here!
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