First-Time Buyers
A false dawn for first-time buyers
Angel Mas, president of mortgage insurance Europe at Genworth, discusses the high loan-to-value mortgage market and possible solutions
by
Angel Mas, president of mortgage insurance Europe Genworth
The plight of first-time buyers has been well documented in the media since the financial crisis began in 2007 and lenders began to withdraw from the market. Irresponsibly loaned sub-prime mortgages and the collapse of the US economy led to many mortgages aimed at first-time buyers being tarred with the same brush and hastily taken off the shelves. With market turmoil continuing and regulators imposing tighter capital requirements, the appetite to lend to this group hadn’t returned, seemingly, until now. In recent months, despite the lack of overall economic recovery – in fact, the opposite – banks and building societies have started to creep back into the high loan-to-value arena. But is this all a false dawn for prospective first-time buyers?
UndersTanding FTBs Research conducted by Genworth in partnership with the University of York last year found that every year between 2006 and 2009, approximately 100,000 first- time buyers without outside assistance were excluded from the housing ladder. In 2009, there were 28,000 mortgage advances to first-time buyers who did not have more than a 10% deposit; down
from 245,000 in 2006. This is a drop of almost 90%. To take a closer look at the figures, the number of younger buyers purchasing with assistance has actually remained constant, but as unassisted buyers have declined by 83% between 2006 and 2009, this group now makes up four in five of all younger buyers. More recent monthly figures from the Council of Mortgage Lenders have continued to demonstrate this trend, with June’s figures showing that, despite a monthly rise, first- time buyers are still 8% lower by volume and value than in June 2010. This is bad news, with the deposit barrier to home ownership now cited as by far the most significant obstacle by households seeking to become home owners, despite house prices being at their most affordable in years. The deposit barrier is socially uneven and impacts most on households who are unable to get assistance with a deposit from parents or friends. In this sense it is a real barrier to social mobility. Younger households continue to aspire to home ownership and many regard private renting as throwing money away. This is particularly true with average rental costs having risen 4.4% in the last year alone, eroding renters’ saving capacity even further.
a caUTioUs reTUrn The recent return to the high LTV market by both big banks and smaller building societies is a positive sign, but it would be wrong to think this a done deal in
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resolving the problems faced by first-time buyers. While there are more products on the shelf, recent CML figures continue to show that mortgage approval levels for first-time buyers are still seriously depressed, with just 15,900 loans handed to this group in total in May 2011. So the apparent plentiful choice for first- time buyers, even those who are good borrowers with the capacity to pay their mortgages, is masking the true picture that is unfolding behind the scenes. Capital requirements for lenders on high LTV mortgages are more onerous due to the higher risks of lending money in that segment, and as such, the cost of lending to this group remains disproportionately high.
Serving this market therefore remains
relatively unattractive to lenders. The reality is that lenders are far from welcoming them through the door with open arms. Whilst lenders recognise the market opportunity and want to be seen to help this group they are still failing to deliver a true solution for their potential first-time buyer customers – and without doubt, risk, capital and associated funding are the stumbling blocks. At a more macro-economic level, while housing demand may be deflated by economic and property price uncertainties, the lack of access to mortgage credit further fuels the recession by preventing natural home formation. The actions of the banks in protecting their capital reserves and keeping risk low therefore exacerbates the problems
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