First time buyers despair as house prices continue to rise
With house prices continuing to rise and salaries stuck it is no wonder that ‘generation rent’ are despairing at ever being able to save enough deposit to buy their own home.
May 21, 2015
The divide in house price affordability and pay has never been greater and as fast as they try to save, our younger generation can see their dream of home ownership slipping ever further away.
It takes the average first time buyer 5 years to save the 15-25% deposit lenders require for home ownership. By which time property prices have increased again and again – meaning that hapless home owner wannabes are caught in a vicious circle.
None of the current Government backed schemes answers the problem of home ownership affordability in the long-term. Prices won’t come down and salaries won’t rise to the level they need to.
The simple reality is that the amount of mortgage available to buyers needs to be higher but the monthly repayments still need to be affordable. This could be achieved in a number of ways:
- Increase the term of mortgages – traditionally 25 years – by increasing the term to 40 or even 50 years monthly repayments could be halved. Build in an option for early repayment as salaries rise and equity in the property is achieved.
- Offer longer fixed rate mortgages. The amount of lending is currently curbed because lenders have a duty to ensure that borrowers can afford to repay their loans even if rates rise. If rates were fixed for the term of the mortgage this would provide more security for the lender and the borrower and lead to higher lending.
- Bring back Mortgage Interest Relief at Source (MIRAS). One of the more popular tax breaks, originally introduced in 1969 by Roy Jenkins to encourage home ownership, MIRAS allowed borrowers tax relief on the interest on their mortgages. It was abolished in the year 2000 by Gordon Brown as a ‘middle-class’ perk. The tax relief is given at source (i.e. it is deducted from the monthly mortgage payment) making mortgage payments more affordable. This in turn means that lenders could be more generous in the amount they are prepared to lend, thus decreasing the amount of initial deposit our first time buyers would need to find.
The mortgage industry need to work with the Government to provide better, more affordable mortgage lending to produce a long term solution to this knotty problem.
Author: Sharon Buthlay
Property Lawyer and Director of Conveyancing Marketing Services Ltd
Author of ‘The HIP Way to Buy and Sell Your House’