Monday, Oct 12, 2009

Scarcity of deals available for FTBs

Citywire: First time buyers stumping up £40k deposit

First-time buyers are currently shelling out more than £40,000 on a 25% deposit, the Council of Mortgage Lenders revealed today as it reported a monthly dip in mortgage lending. The UK's mortgage market continued to improve from lows seen at the height of the credit crisis but at a huge cost, the CML said, with new borrowers shelling out a quarter of the value of properties in an effort to get their foot on the property ladder.

Posted by jack c @ 01:59 PM (2169 views)
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1. mark wadsworth said...

When will the Bank of Mum & Dad and/or unsecured credit card debt be used up?

Monday, October 12, 2009 02:02PM Report Comment

2. str 2007 said...

It seems a big sum to have to find, particularly given student debt etc.

And with their £40k savings gone and a £120k mortgage to get started with, what are the chances of moving up that ladder ?

10 years ago the same £160k property would have cost 1/2 that and as I recall seemed quite achunk of money then to be borrowing.

Monday, October 12, 2009 02:12PM Report Comment

3. chrisa said...

'The UK's mortgage market continued to improve from lows seen at the height of the credit crisis but at a huge cost, the CML said, with new borrowers shelling out a quarter of the value of properties in an effort to get their foot on the property ladder.'

So the banks by requiring massive deposits are sucking more money out of the economy that could have been spent in some cases on goods and services. This can only be bad for the economy I would have thought. There can't be much of a supply left of FTBers to keep stumping up this size of deposit. Are Mum and Dad actually condemning their children to mortgage slavery by helping with these deposits, while at the same time propping up inflated prices and swelling the coffers of the bankrupt banks? Interesting situation. How much longer...............

Monday, October 12, 2009 02:16PM Report Comment

4. Happyrenting said...

Surely this is just a handful of people. Your average Fred and Fiona won't have a prayer of raising £40k (mum and dad or no mum and dad). They still seem to have no problems filling the designer clothes shops and expensive restaurants. I would say the majority of twentysomethings would rather spend spend spend than save save save. I'm 30 years old, renting, waiting for the crash and that is the perception I have of my contemporaries.

Monday, October 12, 2009 02:18PM Report Comment

5. keith thomas said...

This is how it should be - borrowers should have to put down a sizeable deposit to prove they're responsible, reliable savers. It also ensures they can't just walk away as they've got too much to lose. OK £40K maybe rather high but it would have never have got like this if there hadn't been the 95-100% mortgages forcing up prices in the first place. It strikes me that the drive for wider property ownership is misguided and has gone to far - perhaps many of the people struggling with repayments and the threat of repossessions should never have been property owners in the first place.

Monday, October 12, 2009 02:25PM Report Comment

6. crash n burn said...


Maybe the seller will recycle that money into goods and services.

Nice to see people stumping up the cash now. Soon they'll be flushed out and housing will return to normality.

Monday, October 12, 2009 02:34PM Report Comment

7. gone-to-colombia said...

Keith Thomas, I could not agree more, buying a home should be conidered as a serious business, a real and long term commitment.
However, along with such a mind set should be a good supply of affordable alternative housing, such as council homes.
The Thatcher era led to the ignorant and the stupid having fewer alternatives to buying a home.

Monday, October 12, 2009 02:37PM Report Comment

8. krustyatemyhamster said...

Doesn't it It spew out as much money out as it sucks in? For every BoMAD loan to their offspring, there is someone offloading property at the end of the chain (probably another boomer) who is in receipt of said dosh - so it's not sucking in money from the economy. What it is doing is making the younger generation property owners more indebted to the older generation (their parents). However, BoMAD is more likely to be generous with repayment windows, interest rates and write-downs. So what it does amount to is a transferral of wealth from property owners to their offspring property owners. No surprises there then. Bugger everyone else who wants to stand on their own two feet and wasn't lucky enough to have landed parents.

Monday, October 12, 2009 02:42PM Report Comment

9. house said...

I now do not think that we are going to have a crash like we had in the 1990's. People it would appear will do anything to get on to the property ladder, even if it means borrowing to the "hilt". The problem this time is that the boom carried on for too long and the threat of prices coming down has been averted by government intervention etc.

The key question is, will the property continue to go up in the next 10years. Many I understand say that it will go up by 10% per annum forever. These people should be sent to the nearest asylum but that is the feeling and it is shared by many property vested interest including estate agents I imagine.

Therefore based on the 10% increase p.a. means that a property bought for £150000 (a shoe box) will be worth £388500 in 10 years time compounded.
I did a similar calculations in the 1990's boom and came to a figure similar to the figure we got today and I could not believe that it would ever happen because it was not financially viable but I have been proved wrong.

Any comments on my calculations. It simple compound interest calculations. It would appear most people out there do not understand it. But hey who I am to judge people's ignorance.

Monday, October 12, 2009 02:58PM Report Comment

10. house said...

@7, what come to mind is, I am alright Jack, nothing has changed except that we have more landed parents. I understand your frustration but I am sure you have heard of the addage "Charity begins at home.

Monday, October 12, 2009 03:02PM Report Comment

11. letthemfall said...

It is plainly impossible for house prices (or prices of any other asset for that matter) to increase continually at a rate greater than economic growth. If inflation were 7% and growth 3%, they could then. Otherwise eventually all wealth would be absorbed into houses, but the economy would collapse before then, or rather houses would crash first. They've dropped 20% already, which is as much as they dropped in the 90s.

The question is what happens next. Houses are still overvalued, but then the debt overhang has still to be unwound. To maintain high prices you have to come up with a way of maintaining and increasing this debt. No, people do not understand this, but it would seem nor do most so-called experts.

Monday, October 12, 2009 03:48PM Report Comment

12. uncle tom said...

I'd like to know where the long term rental yield figure of 3.6% came from - I suspect it is a very short 'long term'.

In a stable market, where house prices keep pace with inflation; the economic gross yield figure needs to be in the order of 6-7% for most properties, and rather more for those at the cheapest end of the spectrum.

Anything less does not produce an adequate yield for the landlord, after all costs and expenses have been acounted for.


I have a suspicion that most of the current crop of 'first time buyers' are second time rounders, with old equity to play with.

I noticed some years ago that the proportion of first time buyers was statistically much too high, and discovered that the reason was the method of determining who FTB's are..

..anyone buying a house who does not have a house to sell at the same time gets counted as a FTB, so for various reasons, many people get counted more than once in their life, and sometimes more than twice.

The actual number of BOMAD funded buyers may be no more than a few thousand per month.

Monday, October 12, 2009 03:55PM Report Comment

13. crunchy said...

1. mark wadsworth said...When will the Bank of Mum & Dad and/or unsecured credit card debt be used up?

When enough of the shafted refuse to fund them anymore?

Monday, October 12, 2009 04:25PM Report Comment

14. crunchy said...

A new one for you mark, Shafted over-ism

Monday, October 12, 2009 04:28PM Report Comment

15. mark wadsworth said...

Uncle Tom, that's a fair point (I had heard that many STB's are classified at FTB's).

But you/we did some global rough and ready stats comparing properties coming up for sale each year (new builds, BTLers offloading, repossessions, deaths, emigrants etc) with the number of FTBs (let's assume BTLers are net sellers at the moment). (all other sales can be ignored, i.e. existing home-owners buying and selling)

The number of FTBs quoted by the CML and BBA did seem surprisingly high to me (about 20,000 per month) so if you know how many "official" FTBs to exclude, we have an even greater imbalance of new supply versus net demand (i.e. 'fresh blood' i.e. 'cannon fodder').

Monday, October 12, 2009 04:44PM Report Comment

16. house said...

@10, most so called experts have a vested interest. I assume you agree with my figures.

Monday, October 12, 2009 04:44PM Report Comment

17. mark wadsworth said...

@ Crunchy, that's all in the book "1984".

The "high" class don't like being overthrown, so small numbers of the disgruntled are allowed to progress up the heirarchy each year (from "prole" to "OuterParty"), just enough to dilute and demoralise the opposition. A good example of this was Thatcher selling off council houses to ensure that "the better off poor" got some scraps from the table as well.

Monday, October 12, 2009 04:47PM Report Comment

18. crunchy said...

Thanks for that mark.

I often wondered what the UK Scrappage Scheme was really all about.

Monday, October 12, 2009 04:56PM Report Comment

19. another alan said...

Buying a house (in the current climate), crazy.
Stumping up 40k as a deposit, crazy.
Committing yourself to the necessary monthly payments for a long time, crazy.

Renting and 'living (within means)' (i.e. attempting to enjoy life) seems so much more preferable than signing up for slavery.

Monday, October 12, 2009 05:08PM Report Comment

20. str 2007 said...

another alan

But if you're signed up for renting (long term as you seem to imply) surely you really are signed up to being someone's slave.

Their pension slave.

I feel very sorry for those without deposits who are forced to rent.

Quite surprised myself the HPC party isn't in full swing by now.

Monday, October 12, 2009 05:17PM Report Comment

21. crunchy said...

18. another alan

They changed the name of the "slavery train" to the "gravy train" but it still has the same driver.


Monday, October 12, 2009 05:18PM Report Comment

22. crunchy said...

The only thing that can enslave you is your mind. Everyone is a slave to someone or thing in a technical sense. That only becomes true if

it's a thought or habbit you can't kick.

Monday, October 12, 2009 05:28PM Report Comment

23. Rix said...

Sorry, I'm new here so forgive my ignorance...but I just don't get it: why (beyond your own wishful thinking) is their going to be a house price crash? You forget the vast vested interest pushing to keep prices up (Peter and Gordon manipulating an entire economy to keep them up for one thing), the large numbers of high earners (and not so high earners) putting money into buy to let, wealthy foreigners buying here because our collapsed currency represents to them a 30% devaluation in price in 5 years, low interest rates, and the widespread beleif amongst ordinary people that a house is their pension (and bearing in mind how poorly private pensions perform who can blame them) and then theres a vast army of cushioned and cosseted public sector workers and quangocrats (many on very nice salaries), for whom there is no prices have "fallen" as much as they are going to and thats that. As someone trapped in rented property because of high prices I wish with all my soul that I was wrong, but I beleive that there is and will not be a substantial house price crash, it ain't gonna happen, wake up and smell the coffee and (like me..) struggle on with life as best you can.

Monday, October 12, 2009 05:45PM Report Comment

24. matt_the_hat said...

8. house - Any comments on my calculations

Yes there wrong (should be 389.0614k) but don't worry your in good company " It would appear most people out there do not understand it. But hey who I am to judge people's ignorance." LOL

Monday, October 12, 2009 05:49PM Report Comment

25. Unbeliever said...

The bank of mum and dad may be selling out at the top of the ladder to downsize to a bungalow thus releasing money to put down a deposit for their kids. On this basis it can go on for ever

Monday, October 12, 2009 05:56PM Report Comment

26. krustyatemyhamster said...


That's 3p too much.
And it's: 'they're wrong'
And it's: 'you're in good company'.

Everyone loves a pedant.

Monday, October 12, 2009 06:10PM Report Comment

27. fallingbuzzard said...

What a load of bull from the CML. As a professional investor and advisor in this sector, let me set the facts straight on their dodgy data.

First of all, their definition of first time buyer is all over the place on a lender by lender basis because different lenders put different borrowers into different buckets. FTB usually includes people who have owned property before and are moving back from rental - so where did that depsoit come from? Equity, just delayed by a few months or years. FTB usually includes anyone buying a property but having no property to sell - which takes in second homes, also with deposits largely financed out of first house equity. FTB also includes BTL purchases unless the lender specifically splits out BTL; part cash deposits, part deposits based on equity. Many lenders now don't split this out of FTB. FTB also includes joint buyers where one of the two buyers does not own a property but one does, has equity in it, is selling and is using the equity as a deposit. So most of what's defined as FTB isn't in terms of the literal or traditional definition of people at the bottom of the ladder buying their first place.

As for the deposit figures, there is no big bucket of cash being put down because its being overstated because deposits in the form of housing equity (rather than cash) are included in the calculation for FTBs.

Monday, October 12, 2009 06:17PM Report Comment

28. Ride_on said...

4. Keith Thomas - It is not the 95-100% mortgages that are the problem, they do not necessarily select those who can afford to repay which is the more important thing. These big deposits are purely to protect the bank from neg equity, salary multiples are much more important for affordability and it seems the banks are carrying on as before in this respect.

Monday, October 12, 2009 06:34PM Report Comment

29. str 2007 said...

Thank you for putting the record straight FallingBuzzard.

Monday, October 12, 2009 06:38PM Report Comment

30. Neil B said...

"First-time buyers are currently shelling out more than £40,000 on a 25% deposit, the Council of Mortgage Lenders revealed today"

Thanks for revealing that CML - we'd NEVER have worked that one out.

Monday, October 12, 2009 07:18PM Report Comment

31. Lovemyhome said...

25 comments for this post....!!!. 40K is a lot of money but so amny people have made a fortune over the past 10 years that there are plenty of people who have this amount to put down. You can get mortgages with lower deposits but the interest is higher. I alone saved over 20K in my 20s and bought in deperate to have a place of my own at the time and still living like a student in my 30s...I has not let me down. Even in a recession, Im not in negative equity and have made some money on my property. My hard work and effort means I would never drop the price....its worth every penny....30% ars. Get saving....not spending....

Oh and Ive also travelled the world and had a good time in the process.....I know not everybody is as lucky as me but WAKE up some of you!!

Monday, October 12, 2009 09:23PM Report Comment

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