First-time Buyers 'give Up Hope'

[Bloo Loo]

Read nothing into the change of tack....this is normal, the public, or the press, not sure which, tires of the same old same old in a few weeks....six months ago it was the banks not lending, today, its the lack of affordable homes, tommorrow, its Foreigners buying our manufacturing... none of the words are worth much but will get the party in the headlines, while the elite continue to bail themselves out and the government postures for the next democratic round of sops to the voters.

Edited May 27, 2009 by Bloo Loo

[50%deposit]

Abandom HopeAll Ye Who Enter

said the sign at UK immigrations at Heathrow

[A.steve]

Yes there is much in what you say. On the other hand it assumes that the sole motivation in owning a house is to preserve wealth - and to trade up as one accumultes more cash over time (perhaps as career develops and income increase).

I think even if property does not gain in value in the future there is the motivation of the basic life cycle of the family. Economically it might make sense to rent until you have saved enough to purchase a 5 bedroom house as a first time buy. But will the majority of people with a number of children desire to rent? Assuming the current system this might involve a number of moves of the family, the restriction of remaining near children's schools, and the substantial expense of moving a family.

People may be more willing to spend money for the benefit/convenience of their family than you suggest - and so may well be willing to forego the advantage of holding cash over property.

I'd like to defend my arguments against the counter-claim that I assume that the sole motivation in "owning" a house is to preserve wealth... I make no such assumption on the scale of individuals. I don't think most people thought it through clearly in the past and I don't expect them to do so in the future either. I expect it to be an emergent behaviour of the population as a whole. Some people will embrace the same trend as the group as a whole - and they will do best; the rest will have a tougher time.

I know that people will be willing to go to extraordinary lengths at unbelievable cost to secure a home so that they can feel secure to start a family. I also know that it is when one has children that one benefits most from extra space and when there is most concern about the environment and local facilities. Most of us are willing to slum-it when we only have ourselves to consider - but when we're in love (and most people love their children) that takes priority over all else. Taking a game-theoretic perspective, I postulate that this means that there's an extremely roubst "Nash Equilibrium" that suggests that, for most people, buying a home will remain their one most expensive purchase in their lifetime - and that, when they buy, they'll buy the best they believe they can afford. There will be errors of judgement, for sure... and most shortly after economic shocks like the one we've just seen... but, after a while, I'd expect things to calm down and there to be roughly the same number of people under-estimating what they can afford as over-estimating... so, hence, without irrational house price inflation, there is no reason for house prices even to remain static.

As an illustration of this - my parents, and parents in law, bought houses in an era when house prices were not a way of preserving wealth. (We're talking early 50's) They first bought when they got married. Both moved to a larger house when they felt they needed the space for the family. They didn't move again for any other reason. The idea of holding off buying until they could afford the 'full sized' family house would not have occurred to them. Moving up to match house with size of family was natural behaviour.

Therefore I think there will still be a property ladder, one that operates at a slower speed than we have seen in recent decades, and for more sensible reasons.

I'd like to pick out a key phrase from the above: "... was natural behaviour." I agree.

Only time will tell which of us is right - I think people will buy and sell homes in future - and I expect homes to remain an expensive purchase relative to savings and future earnings for the vast majority. I expect homes to remain desirable purchases. My prediction, however, is that those who wait longer rather than rush will afford to buy the better houses. Those in a hurry will end up with the scrag-end properties - and debts that prevent them moving up. Conversely, those who rent have been disadvantaged for 60 years over those who borrowed to "buy" - in future, I expect the balance to shift... and those who rent for longer (assuming similar incomes) will be better off when they buy. What's significant about this hunch is that it can't be right in a small way... if it is right at all, the systemic effects will be self-reinforcing.

In this context - defending my argument (debsoc style) I ask: If house prices are falling - yet debt remains an absolute burden - who has the balance of power in negotiating house purchases... buyer or seller? How does this compare with the past 60 years?

[Darxide]

Yes, I fully agree with that article, and I indeed have gave up hope a long time ago.

The way I see it, I'm stuck either way. When lending was more relaxed, I was saving as much as I could. But prices were rising much faster than I could save. So I could never manage even the small deposit required. Now that prices are falling, the deposit required is much higher, so it's back to square one.

My fear is, that by the time I've saved enough for a 25% deposit, prices will have started rising again. I only earn £20K so it would take me a while.

So unless prices fall a lot further, and/or the lending criterea is relaxed, I'm stuck at home with my parents. And I know there are a LOT in the same position.

[lulu]

Yes, I fully agree with that article, and I indeed have gave up hope a long time ago.

The way I see it, I'm stuck either way. When lending was more relaxed, I was saving as much as I could. But prices were rising much faster than I could save. So I could never manage even the small deposit required. Now that prices are falling, the deposit required is much higher, so it's back to square one.

My fear is, that by the time I've saved enough for a 25% deposit, prices will have started rising again. I only earn £20K so it would take me a while.

So unless prices fall a lot further, and/or the lending criterea is relaxed, I'm stuck at home with my parents. And I know there are a LOT in the same position.

I am in a similar position and recent circumstances have lead me to revisit the option of buying. There is no way on earth the market can rise again unless we see a return to 5/6xsalaries/self cert mortgages.

I got a few quotes from mortgage people recently and even with so called record low interest rates and a 20% deposit I could still only afford the very very worst of the properties that are currently for sale.

But I have a good salary and a decent deposit which is alot more than most other potential buyers - if I cannot afford it then how on earth can anyone else - without a 'sub prime' loan!

Prices have to fall I can see no other way around it (unless someone somehow comes up with a new source of lending)

[Bloo Loo]

Yes, I fully agree with that article, and I indeed have gave up hope a long time ago.

The way I see it, I'm stuck either way. When lending was more relaxed, I was saving as much as I could. But prices were rising much faster than I could save. So I could never manage even the small deposit required. Now that prices are falling, the deposit required is much higher, so it's back to square one.

My fear is, that by the time I've saved enough for a 25% deposit, prices will have started rising again. I only earn £20K so it would take me a while.

So unless prices fall a lot further, and/or the lending criterea is relaxed, I'm stuck at home with my parents. And I know there are a LOT in the same position.

no, its not back to square one, the market is moving to include people in your position...as it must.

[Darxide]

no, its not back to square one, the market is moving to include people in your position...as it must.

I hope so, but I'm not holding my breath.

I don't want the banks to return to 100% LTV, or 5/6x salary, because that would just be setting us all up for another fall. But until something happens to end this 'mexican stand-off' with sellers refusing to lower asking prices, FTB's priced out, and banks asking for massive deposits, I can't see any solution.

[red]

I hope so, but I'm not holding my breath.

I don't want the banks to return to 100% LTV, or 5/6x salary, because that would just be setting us all up for another fall. But until something happens to end this 'mexican stand-off' with sellers refusing to lower asking prices, FTB's priced out, and banks asking for massive deposits, I can't see any solution.

Just remember - it's SOLD properties that set the market price, not those whose sellers are in denial and refuse to lower asking prices. Every time a property sells, the local surveyor uses it as a 'benchmark' to other properties in the area. That's why many deals are falling through as surveyors are forced to ratchet down values...

And with ref to OP, EAs and VIs in the media are peddling the myth that FTBs are suffering because they can't get mortgages.

Total nonsense. The issue remains that prices are simply too high. Current mortgage rates and LTV ratios provide a sane, rational basis for a sustainable housing market, IMHO. (After another 30% off prices, of course... )

[BlackSwan]

The article rightly points out that the biggest barrier to entry for most FTB's is indeed deposit size.

A 25% deposit on a 50K flat, is still significantly further out of reach than a 5% deposit on a 100K flat. Contrary to the commonly held assumption on here, not all areas of the UK have rents cheaper than mortgage payments, therefore the ability to save is severely constrained for many young FTB's.

Low deposit requirements make home ownership more accessible, for more people. High deposit requirements act as a barrier to entry, and needlessly block many young and low income people out of the market, particularly in the many areas where rent is equivalent to a full repayment mortgage payment.

There is no doubt that even with 50% falls, the current excessive deposit requirements (particularly to get a half decent rate) will ensure that many people cannot take advantage of the lower prices.

You have totally ignored or misrepresented the reason that large deposits are being sought - banks do not have faith in current values! Once the market bottoms out and banks have a greatly reduced risk of negative equity then they will increase LTV.

I am so tired of the current lending restrictions being regarded as abnormal - they are! - But that’s because that are needed to force a correction on the market that is long overdue. The overall level of risk in the market is reflected by the lending practices, not created by them.

HPI has been used as a threat against those unwilling to borrow huge sums. The constant talk about green shoots and whingeing about lending is to seek to perpetuate that threat - i.e. if you don’t borrow a huge sum now then you will have to borrow an even bigger sum later.

And what is this rubbish about "taking advantage of lower prices"? What advantage is there in the current climate with abnormally low interest rates that simply have to rise and prices that have not fallen in line with lending restrictions?