Two million first-time buyers frozen out of home ownership

Genworth said when compared to previous generations, there were 1.8 million fewer first-time buyers between 2007 and 2013 than would be expected.

It said this figure is likely to pass the two million mark by the end of this year, despite the Government’s attempts to boost first-time buyer numbers through Help to Buy. The scheme allows borrowers with a 5pc deposit to secure a mortgage, but the number of first-time buyers is still far below pre-crisis levels.

Genworth said that while many lenders now offer mortgages for borrowers with a 5pc or 10pc deposit, the cost remains too high compared with historic norms.

Between 2008 and 2013, lenders stopped offering loans to borrowers with a deposit of less than 10pc because this type of borrowing was deemed too risky. When they reintroduced these loans last year, the cost soared.

Pricing differential for a two-year fix

Genworth said for the average first time buyer home worth £147,000, a borrower with a 25pc deposit would pay £496 in monthly repayments, while a borrower with a 5pc deposit would pay £843.

Assuming both pay up to 30pc of their net income on their mortgage, Genworth said the former would need a gross salary of just £24,800 while the latter would need £45,800 to support the repayments.

It said this has caused lending to first-time buyers, which averaged 40pc of all mortgage lending until the mid-1980s, to fall to less than 10pc by 2008.

Expected and actual first-time buyer numbers

Help to Buy and other Government schemes such as Funding for Lending, which made cheap wholesale funding available to mortgage lenders, have made some headway. The proportion of first-time buyers has now risen to around 20pc.

Figures released this month by the Council of Mortgage Lenders (CML) showed that 28,600 loans were advanced to first-time buyers in June – the highest number since December 2007. This was up 18.7pc since the same time last year.

However there are fears that when Help to Buy ends, which under current plans will be 2020 at the latest, lenders will retreat from the first-time buyer market.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said there is a danger that the resurgence could be short-lived.

“The mortgage market is making solid progress in recovery, but we’re still some way off normality,” he said. “Temporary injections like Help to Buy are needed to counterbalance the stricter lending landscape, but safeguards must be put in place to ensure we don’t become reliant on short-term treatments. Otherwise the market, and particular the first time buyer segment, will get a harsh dose of reality when the rug is pulled from beneath it.”

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