The number of people seeking official help to step on to the first rung of the housing ladder is soaring, according to regional housing associations that administer government programmes to make home ownership possible.
“In terms of demand, we currently have 70,000 live applications,” said Graeme Moran, managing director of Metropolitan Home Ownership, a North London-based housing association that is one of the UK’s largest. “That is up 40 per cent from two years ago.”
Demand to buy houses, he said, had outstripped the supply – both of properties and of finance to buy them. Housing associations around the country tell the same story.
First-time buyers, who provide underpinning to the housing market, have been frozen out, despite record low interest rates, by two factors, housing experts say. First, is a new-found caution on the part of lenders forcing those who want to buy to come up with a 25 per cent deposit.
Second, although house prices are off their peaks, they have not fallen nearly far enough to make them affordable to many prospective buyers.
To make that first purchase, would-be buyers are turning to a programme that has been around in different forms since the 1970s – “shared ownership”. Now called HomeBuy Direct, administered by the Homes and Communities Agency and created about five years ago, it is attracting people who would once have seen an inability to buy a home outright as a stigma.
Mr Moran said that over the past two years, the nature of applicants had changed. They are no longer largely “key workers” – for example teachers, nurses, or bus drivers on low incomes whose work is vital to urban areas – but young professionals who would once have had little difficulty in obtaining bank financing.
Shared ownership back in vogue
The number of properties held in shared ownership fell from 67,700 in 2005 to 66,600 in 2006 during the housing boom when buyers were able to obtain mortgages worth 100 per cent or more of the purchase price. However, it began edging up in 2007 and at the end of last year stood at 96,600, up nearly half in five years as the lending market seized up.
Typically, buyers take out a loan for 70 per cent of the value of the property with the developer and the housing association each lending 15 per cent more. When the home is sold, any capital gain is split between seller, developer and housing association in proportions equal to the capital each has provided.
The Council of Mortgage Lenders, which represents most of the industry, does not formally track arrears and default rates for first-time buyers. However, it said lenders had long known that this group had higher rates of late payments and defaults, even if they had not previously been penalised in the rates they paid.
But current lending practice is an obstacle. The CML estimates that mortgages to first-time buyers are currently running at half their long-term average. “We absolutely need first-time buyers to come into the market in order to have any transactions at all,” she said.
Sarah Parmenter, a spokeswoman for Plumlife, a shared ownership scheme operating in Greater Manchester, South Yorkshire and Lancashire, said even people on fairly good incomes could save for years and still fail to raise a downpayment.
“Because of that, many middle-income earners who would never have considered themselves for any government assistance are now interested in the scheme,” she said. Raising the maximum income that can make individuals eligible for shared ownership schemes to £60,000 had been vital, she said. “Even if you are earning £55,000, which is a good salary, you are never going to be able to save up for a deposit.”
Matthew Harrison, deputy chief executive of the Great Places Housing Group, the housing association that operates Plumlife, said that the number of formal pending applications, at 389, was more than double the number at this time last year. Unique visits to the website, at 10,900 in March, were a record.
At Moat, a housing association serving Essex, Sussex and Kent, there were about 15,500 applicants in 2009-1010, said Marilyn DiCara, director of sales, marketing and new business. That is up by about a quarter in two years.