A generation of homebuyers locked out

By Sarah O'Grady
Posted: 2010/10/12

LABOUR ‘boom and bust’ policies have locked a generation of young people out of the property market.

In a blistering criticism of the previous Government’s handling of therneconomy, housing minister Grant Shapps will warn that millions ofrnyounger buyers face an uphill battle to realise their dream of buyingrntheir own home.

rnHis warning was reinforced by an independent report which echoed hisrnwarning saying the current problems in the mortgage market could take arndecade to fix.

Insurer Genworth Financialrncalculate that as many as 400,000 first-time buyers were unable to takerntheir first step onto the housing ladder between 2006 and 2009 as thernnumber of homeloans available to them plummeted.

rnMortgages taken out by people with only a 10 per cent deposit -rntypically associated with first-time buyers - dived from 245,000 inrn2006 to just 28,000 in 2009 - an 89 per cent fall.

rnWith house prices still high in relation to earnings, a buyer puttingrntogether a deposit of just 10 per cent of their home's value would havernto save the equivalent of £18,600, rising to £29,700 in London.

rnIn a keynote speech to the prestigious Housing Market Intelligencernconference today (tues) Mr Shapps will say: “By presiding over a systemrnwhich saw house prices double in just ten years, Labour ensured thatrnbuying a home was out of the question for the vast majority of wannabernfirst time buyers.

“With a house nowrnliable to cost perhaps seven times someone’s earnings, it is nornsurprise that the average unsupported first time buyer is 37 years old.

rn“This country is in danger of letting down the aspirations of yetrnanother generation if homes do not become more affordable in the longrnterm.

“We need a period of house pricernstability because policies pursued by the last government locked thernvast majority of first time buyers out of the market.”

rnLabour’s hikes in Stamp Duty put pressure on supply which led tornshortage of homes for sale, this coupled with a record low number ofrnhomes built and a lax banking system fuelled a housing price bubblernwhich burst at the onset of the credit crunch.

rnProfessor Steve Wilcox, chairman of the Centre for Housing Policy atrnthe University of York, author of the report, echoed Mr Shapps’ warning.

rn“A generation of young people could be prevented from getting on to thernhousing ladder as the barriers to home ownership continued to widen,”rnhe said.

“Not only does this bar peoplernfrom the security and potential wealth creation that comes from owningrna home, but it could also have implications for the UK's economicrnrecovery and the savings gap, as equity people have built up in theirrnproperty is often the only form of savings young people have.

rn“Not only that, socially it is also unfair, as people who could notrnrely on parental support are excluded from home ownership.”

rnThose who were able to put together a deposit of only 10 per cent couldrnalso expect to pay significantly more for their mortgage than thosernwith larger ones, at an average rate of 6.61 per cent in April thisrnyear, compared with one of 3.83 per cent for buyers with 25 per cent tornput down.

Angel Mas, of GenworthrnFinancial, said: "This is a situation that could take decades, notrnyears, to recover and raises real concerns that a whole generation mayrnbe excluded from getting a foot on to the housing ladder."

rnDespite the problems they face, 42 per cent of younger households stillrnaspire to being homeowners over the medium to long term, with manyrnsaying they considered renting in the private sector to be "throwingrnmoney away".

The report called on banksrnand building societies to relax their lending regulations and said thernGovernment should allow local authorities to act as guarantors of 100rnper cent mortgages for key sector workers.

rnSocial housing tenants could also be given equity grants based on thernincrease in value of their home to help them move from social housingrninto their own property.