Help Needed for First Time Buyers

Nationwide recently announced they will be charging higher rates to first time buyers who don’t have a 25% deposit (link). This is bad news for long suffering first time buyer. If you consider that average house prices are £200,000, a 25% deposit represents £50,000. For nearly any aspiring homeowner in their 20s, to save £50,000 is nearly an impossible task. (unless you can get help from your parents) If you consider that you could leave university with £5-10,000 of debts. Then if you add the cost of renting, it makes it very difficult to save any real amount for a deposit.

If the trend set by Nationwide continues, it will make first time buyers increasingly take out more expensive mortgages or no mortgages at all. The problem is that mortgage deposits will take a very high % of people’s income making things like saving for a pension very difficult. (The first thing I did on taking a mortgage was to stop any private pension contributions)

There is an issue here of intergenerational inequality. For the majority of homeowners who bought a house more than 7 years ago, they have made a nice equity gain and are paying reasonable mortgage payments. However, first time buyers face the unpalatable choice between wasting £100s a month on rent or struggling to get your first mortgage.

If mortgage lenders wish to make things difficult for first time buyers, it may be necessary for the government to encourage more realistic mortgage schemes. These could involve subsidies or direct government provision of mortgages for young people (not just limited to the ‘key public sector workers’):

• Longer mortgage terms
• Fixed Rates for the medium term
• A Mixture of Ownership and renting.

The government should help first time buyers, otherwise there will be a growing form of wealth inequality. There will also be increasing pressure from parents to come up with a deposit.

Anecdotal evidence is rather sketchy, but I know of many young people in their 20s and 30s who are considering leaving the country because it is so expensive to live here in the UK>