Help getting on the ladder may be a hindrance to climbing it

Between 2009 and 2012, the average first-time buyer (FTB) required a £42,000 deposit, not far off double the average annual earnings at the time. The government’s priority was, quite rightly, to give a greater proportion of the population a realistic chance of getting on the housing ladder. Whatever criticisms might be made of unintentional consequences or “undeserving” recipients, it cannot be denied that the Help To Buy (HTP) scheme, alongside stamp duty reform, has achieved that aim. From a low of 188,000 in 2011, the number of FTBs obtaining mortgages has grown rapidly, reaching 353,000 in 2018. The proportion of new house-purchase mortgages going to FTBs has risen from a low of 38% in 2011 to 52% today. However, therein lies a hint of a broader problem: while these interventions have made it easier to get on the ladder, it appears harder than ever to move up it.

Whilst FTB loans have almost doubled since 2011, the number of home movers obtaining mortgages has barely recovered at all. In fact, the number of movers has stagnated over the past five years, stuck at less than half the level achieved in the years preceding the financial crisis. What this illustrates is that, while more buyers are being successfully lifted on to the ladder, it is going to be increasingly difficult for many of them to make the next step. The reasons for this are multiple but revolve around the total cost of moving to a larger property, particularly if the potential mover used HTB to acquire their first home. Rising market prices and high gearing will have delivered such buyers a large increase in equity, but they will have to pay away up to 40% of this upside when they exit the scheme. Meanwhile, the price of the next property will likely have risen proportionately, and affordability tests may restrict their new mortgage to a materially lower loan-to-value (LTV) than the 95% achievable with HTB. The required equity cheque can therefore be quite substantial – and the fact they may now be exposed to stamp duty can add substantially to the usual transaction costs. The net result is more homeowners are choosing to stay put in homes even when they may no longer be suitable, a trend that is contributing to the loss of liquidity further up the chain.

Prices and affordability

  • The Nationwide Index suggests price growth remains marginally positive at a national level. The annual growth rate has slowed to just 0.4%, and 2019 looks set to be the weakest calendar year since 2012.
  • Regional data from Nationwide shows that prices in London have come off by around 4% from their 2017 peak. They also suggest prices in the South East may have peaked in early 2018. In contrast, prices continue to rise elsewhere, notably Northern England, Wales and Northern Ireland.
  • Soft pricing, improved earnings growth and a competitive mortgage market have reduced the proportion of earnings that first-time buyers are having to allocate to their mortgage. The average has fallen to 31.2%, compared to a cyclical peak of 51.8% in 2007.

Source: Nationwide

Sales activity

  • he RICS Residential Market Survey for October reports that newly agreed sales remain on a downward trend in every region other than Northern Ireland. The outlook is also downbeat, with new buyer enquiries trending down in most regions. Vendor instructions are even more negative, illustrating a reluctance to sell into a weak market.
  • It’s notable, however, that buyer enquiries in London have continued to improve gradually, indicating potential buyers feel there is good value to be had. This is perhaps supported by the fact that 69% of properties listed at £1m or more are being sold below asking price.


  • Strong competition in the mortgage market continues to drive down quoted rates, notably for five-year fixes, which have fallen by 20bp in the third quarter to a new record low of 1.8%. This makes a five-year fix today cheaper than a two-year fix was just 12 months ago.
  • Average LTVs have been held down by limitations on earnings multiples; however, they have started to creep up in recent years. This has been facilitated by a combination of falling interest rates and longer loan terms. The average mortgage term for an FTB is now 29.3 years, taking the majority of borrowers out beyond their 60th birthday.

Source: Finance UK

Supply side

  • The latest statistics from the Department for Communities and Local Government (DCLG) show that net new dwellings are up 9% year on year and higher than any time since records began (2000/01). Private sector completions in England are up by more than 50% over five years. However, starts in Q2 2019 were down by 11% year on year and the weakest since 2014. This suggests political uncertainty and rising build costs are starting to affect developer confidence.

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