For some it’s a way to make money, and for others, like large house builders, it’s an economy. But, in it’s most real form, the ‘house’ is a sanctuary where families are created, laughter and tears are shared, and memories made.
Sadly, these homes are more often treated like cash machines. The corporate bonuses of big corporations, or changes in the house price, will mean very little in comparison to the security of calling a house your home.
Six months ago, when this topic was last covered by Peter (Worldwide Financial Planning), and accurate way to look at the cost of buying a home in the UK was looking at the UK’s affordability to buy a home based on price against disposable income. Because house prices are high, it doesn’t mean they are unaffordable, because the income might be high enough to match.
Looking at it as a ratio, the lower the ratio the better. For example:
According to Zoopla, transactions are down 20%. Because of this, the market has slowed. House prices only tend to fall depending on someone’s willingness or need to sell.
Interest rates don’t need to be used to curb inflation. Those buying aren’t creating this spike in interest rates, so theoretically, if central banks choose to see sense, the housing market will go back to normal. Higher rates are slowing the market for the normal buyer but it should return to normal in the end.
These higher interest rates make it hard for first-time buyers. It creates a sense of worry causing it to create a stop in decision-making, leading to stagnation in the housing market. This is due to the kind of wait-and-see response that house buyer’s form.
It also hasn’t helped that many lenders have chosen to cut their availability for mortgage products for those buyers with low deposits, making for an even tighter market for them.
Affordability is now an even bigger worry.
A year ago, the interest rates were 1.3% with monthly payments that allowed borrowers to take out borrowing of £298,000. Now, due to the interest rates being more than 5%, borrowing ability is down to £176,000!
First-time buyers are integral to any ‘housing ladder’. As Peter says “Without then, you don’t try and climb the ladder to fox the guttering”.
One positive in the world of mortgage lending was the 100% mortgage, brought out by The Skipton Building Society. The key part of this criteria is that the borrower has to prove they have a good 12-month record for paying rent. That unfortunately means those children who have stayed in their parents home to save won’t qualify.
There is another lender offering a 100% mortgage, Tipton, with a 6.29% rate.
In 2021, Rishi Sunak created a mortgage guarantee scheme, but this didn’t really work and is coming to an end soon (even though there were talks of extending it). This scheme allowed first-time buyers to purchase their first property for just a 5% deposit. But due to the affordability test, and limited mortgage products from lenders, this is pretty useless.
The rental market doesn’t have it any easier. Rents are disproportionally higher than mortgages in certain parts of the country, Cornwall being one of them, and London too (London’s rent rates are nearly double of those in Coventry).
Even with the information we have on the current market, it of course still leads to further questions.
Does the government add to its ISA savings plans to boost savings for borrowers? Increase its guarantees? Or, just let the market simmer back a little and let affordability become more real as interest rates fall?
Information from this blog post has been taken from a column piece by Peter McGahan of Worldwide Financial Planning, titled ‘More help for first time buyers?’.
For mortgage advice, get in touch with WWFP’s Mortgage Director, Pat Green: pgreene@wwfp.net
Pat will also be able to send you a copy of their Mortgage Interest Rate Guidance Report.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.