It seems there can’t have been many more difficult periods in recent history for those starting on the great adventure to get a foot onto the bottom step of an Englishman’s castle. It’s tough enough for those who have since moved on to a later stage, whether it be ascending or moving back to a property more suited to an empty-nest lifestyle. Of course the older generations will always have a ready stock of anecdotes about their own struggles with the first time mortgages, and a mind to exaggerate the height of the hurdles they had to clear. It has never been easy, and difficulties peculiar to each period have always presented themselves.
In the 1980s, when Bank and Building Society managers guarded their money the way a Home Movie enthusiast might his projectors, a deferential attitude on the part of the applicant was de rigeur, regardless of his effective credit rating. Knees met metaphorical carpet as trembling hands proffered pay slips and references, bank statements and rent books, ex-votos in a side chapel of money. By contrast, one of the most striking aspects of the last boom before the present bust is that 100% mortgages were being broadcast like confetti at a big fat colourful wedding.
So actually talking someone into lending you a lot of money over a long period has at times been a testing mix of stamina and luck, and then, only the length of an average mortgage later, an operation conducted with not much more than a nod and a wink. Well the pendulum has swung again thanks to the great recession, and the first timers of today are getting shut out.
Of course these trends in availability are interesting and significant but landing the mortgage, when you finally manage it, is only the preface. Paying for that pile of masonry is what constitutes the chapters. Are first-time buyers in 2012 taking a beating on that score or not? One important single piece of data to consult when considering that issue is the House price to Earnings ratio. Around the turn of the century a “natural” ratio between these values was considered to be around 3.5. During the period leading up to the slump in 2008, however, this soared to 6.5, due to the enormous rise in property prices, and making the decision to buy much more daunting and shrinking both the amount of disposable income left for other things and any buffer of savings.
Since the slump began, house prices have dropped about 12% across the UK and earnings have hardly changed. This, along with very low interest rates, should in theory make property for the first-time buyer more affordable. Unfortunately the reluctance of the banks to lend money at all is causing a log jam in the property market as a whole, and it’s showing few signs of easing. And the number of deals available aimed specifically at first-time buyers is much smaller than in recent years.
In the current market a deposit of at least 10% is required and one of 25% is required if a good range of choice is desired and more affordable rates of interest are to be enjoyed. Where in the past a provider was prepared to lend on a straightforward multiple of salary, most today use more complex affordability models to assess the soundness of your finances. A multiple of three times your salary is realistic if your affairs are in good order. And remember – you can’t rent forever. Can you?