Growing disconnect between perception and reality for UK first time buyers, report suggests

The number of people buying their own home in the UK for the first time increased in 2014 but there is a growing disconnect between reality and perception of the market, new research suggests.

According to the latest generation report from the Halifax improving economic conditions together with high profile government schemes such as Help to Buy, saw the highest amount of first time buyers purchase their first home for seven years.

From a peak in 2006 of 402,800 first time buyers, numbers fell as low as 192,300 in 2008 before climbing back to 311,500 in 2014. Despite this the annual generation report found relatively little improvement in how potential first time buyers view their chances of getting on the housing ladder.

The research also shows that 79% of 20 to 45 year olds believe banks don't want to lend to first time buyers, and 21% believe it is virtually impossible for first time buyers to obtain a mortgage. The Halifax says that there is clearly some work to do to dispel the myth that banks are averse to lending to first time buyers.

And the proportion of people saving for a deposit has dropped 6% with some 43% currently saving to buy a property compared to 57% who are not. The lender says that this strengthens the view that more people may be giving up on owning their own home and are instead accepting renting as a viable way of living in a nice home, in an area they want to live in and in the right size of property.

The Halifax also highlights the emergence of a new demographic split between those who want to get on the housing ladder and those who say they don’t at 13% in 2011 compared to 16% in 2015. The presumption that the UK is obsessed with home ownership may need revaluating and a lower level of home ownership may become the new normal, it adds.

The research also shows that 53% think the Help to Buy scheme has had a positive impact, but 39% don’t know or are undecided and the three most cited barriers to home ownership among those who do not own a property are the size of the deposit for 57%, high property prices for 56% and low income for 53%.

London has the lowest proportion of home owners aged 20 to 45 or 39% and the highest number of people in this age range who worry they will never own a home at 82% while non home owners are currently prepared to save for average of 5.35 years in order to save for a deposit whereas homeowners saved for an average of 3.6 years.

The average amount that non home owners can afford to save each week is now £33.35 and
39% of 20 of 45 year olds are saving to buy two bed properties, split between flats and houses at 18% and 22% respectively.

‘This year’s report has revealed real changes in the first time buyer market in the last year. While there has been an increase in first time buyers in the last 12 months, at the same time there is also a growing group of young people who believe they won’t be able to get a mortgage,’ said , Craig McKinlay, mortgages director at the Halifax.

‘This difference between the reality and their perception needs to be addressed urgently if we are to prevent people from giving up on getting on the housing ladder. Home ownership is never going to be the right choice for everyone but we all have a right to the opportunity to own a property,’ he explained.

‘We can educate people about the mortgages that are available to them, but there is still the underlying issue of needing to build more affordable homes. In order to tackle the shortfall in house building there needs to be a long term commitment to building more new homes in the right locations,’ he added.

According to MPs Nick Raynsford, Mark Prisk, co-chairmen of the Lloyds Banking Group Commission on Housing, more homes need to be built. ‘In the UK we are facing a range of interlocking problems relating to the general shortage and quality of new homes being built,’ they said.

‘There is no one, single solution to addressing the supply of good quality new homes. Instead what is required is a comprehensive range of measures which will create an achievable framework for long term housing affordability, and a lasting commitment to a wide variety of different types of developments,’ they added.

For the three years preceding 2015, the report found that the proportion of people saving to buy a home had remained stable with the proportion of people saving for a deposit has dropped six percentage points. Some 43% are currently saving to buy a property compared to 57% who are not, strengthening the view that more people may be giving up on owning their own home.

Among those who are saving, the report also shows potential first time buyers now expect to have to put in more effort to save than existing home owners did. Non home owners are currently prepared to save for average of 5.35 years in order to save for a deposit whereas recent home buyers saved for an average of 3.6 years.

The report reveals high property prices are a more significant barrier to home ownership for Londoners than those living elsewhere in the UK, with 68% of Londoners citing high property prices as the most significant barrier to home ownership compared to the UK average of 56%.

London also has the lowest proportion of home owners aged 20 to 45 at 39% and the highest number of people in this age range who worry they will never be able to buy a house at 82%.

So it is perhaps no surprise that the highest proportion of potential first time buyers who are willing to compromise in order to buy their first property are also based in London at 95%, followed by the East of the country at 92%. Those living in Wales are the least likely to make any compromises at 84%, followed by the South West at 85%.

‘Getting on the housing ladder has always involved some form of compromise, whether this is how much people put aside to save for a deposit, the type of home they buy, or even the location they buy their home in,’ McKinlay explained.

‘In 2015 saving for a deposit is the biggest barrier to home ownership for people across the UK. Continuing to make compromises on things like outside space and the size of the property will all help when trying to buy a first home,’ he pointed out.
         
The Halifax’s generation rent report shows there has been a growing division between those people aged 20 to 45 who are looking to get on the housing ladder and those who don’t believe they will ever be a home owner.

The latest official figures reveal that Help to Buy scheme has helped 88,420 people buy a new home since its introduction in 2013. At the same time, in March 2015, there were 195 95% loan to value mortgages available from UK lenders, the highest since May 2008.

However, a major issue for the market is the clear disconnect between the reality of the housing market in the UK for potential first time buyers and how people view it.

The report points out that closing this gap is likely to see more people trying to get on the housing ladder, with failure to do so having potential implications for the housing market as a whole. The housing market, and indeed the house building industry, needs first time buyers to keep the market moving and enable people to keep moving up the ladder.

While closing this gap is achievable, the last five years have shown that generation rent is here to stay, with a proportion of the population who do not want to own their own home.

It points out that a major issue for the market is the clear disconnect between the reality if the housing market in the UK for potential first time buyers aged 20 to 45 and the perceptions of many 20 to 45 year olds.

It also says that whichever camp people fall into, if the market, and indeed the wider economy is going to continue to grow, the UK needs to address the supply of affordable housing. Building more of the right kind of homes, in the right places, and with the right amenities needs to be a priority in the next five years.