For younger people, simply being able to buy is a priority that hasn’t been accessible in recent years. Things are looking up, but many challenges remain.
To a certain degree, investors in housing need to think young. That is, they should consider the supply of buyers, those people who are making that first step onto the property ladder. Whether the investors and homebuilders (many working though real asset portfolio investing) are building higher-end single-family homes, or one-bedroom flats, those first-time buyers are the supply chain of customers who will push up demand for the product.
Not that demand is much of an issue in the UK. The country is critically undersupplied in homes, where the 120,000 new residences built in 2014 fall short of the 200,000 or more than need to be built every year. In the years following the 2008 recession, lending was tight and builders were nervous. Plans to build were scaled back. But with rising incomes and a number of Government-sponsored schemes that help builders and buyers - in particular, first time buyers - get in the game, building rates are up. Most importantly, buyers are making their moves.
But who exactly is the first time buyer? The following helps break it down:
Ages - The national average age of buyers is 29, which is higher than historical norms but not terrible in the overall scheme of things. In London, first time buyers’ ages have risen from 30 to 32 since the recession.
Wages - Housing charity Shelter teamed with KPMG to identify discrepancies between local housing prices, actual average wages and wages required to get a first-time buyer loan. For example in the South East, the average first home cost £230,000, which requires a wage of £46,000 but the median wage in that district is £24,000. For the UK overall, it’s £202,700 for homes, £40,500 is required and £22,000 is the median wage. The study also found that while 73% of people would prefer to own vs. rent, 69% feel there is not sufficient affordable housing.
In London, where prices are rising quickly, where the number of homes sold for £1 million increased by 25% last year yet the number sold for under £300,000 decreased by 9%, first-time buyers nonetheless were on the rise. How? The Council of Mortgage Lenders finds that in the Capital City that parental help is widespread in deposits and outright purchases.
Children? - A spokesperson for the Mortgage Advice Bureau told the Daily Mail that banks were increasingly asking questions about family plans, particularly when the borrowers had small deposits. They want to know if a working wife or husband planned to quit her or his job if the family adds children. Such borrowers can be refused on a vague, “you don’t fit my criteria,” the advisor said.
Regions - Of course, London is the least affordable area for first time buyers (average home price is £323,333). Northern Ireland (average home price is £80,703) is most affordable, while seven of the top ten affordable areas are in Scotland.
Pessimistic expectations - Propertywire.com reported in April 2015 that an attitudinal survey by the mortgage firm Halifax found 79% of people ages 20-45 believe that banks don’t want to lend to first time buyers; 21% believe it’s almost impossible to get a first-time mortgage. Halifax is quick to point out this is a myth – but perception can be reality.
Sensible - The Office of National Statistics shows that first time buyers have mortgage repayments that consume, on average, one-third of disposable income. In 2007, the height of the last housing bubble, that was closer to one-half of income. So buyers are at least setting themselves up for a realistic loan burden.
It is important to note that this is a recovering market. First time buyers in 2006 numbered 402,800, but fell to 192,300 in 2008. It is now 311,500 buyers (2014) and expected to climb further in 2015. Joint venture partnerships building homes and high rise flats need not worry their properties will sell.
Investing in construction as well as UK land or all other aspects of real estate may be at a critical moment in Britain - the opportunity is great, the market very strong and the overall economy appears to be on the upswing. But as with any investment, it’s most wise to speak with an independent financial advisor to learn how a position can affect a risk-exposure profile.
To a certain degree, investors in housing need to think young. That is, they should consider the supply of buyers, those people who are making that first step onto the property ladder. Whether the investors and homebuilders (many working though real asset portfolio investing) are building higher-end single-family homes, or one-bedroom flats, those first-time buyers are the supply chain of customers who will push up demand for the product.
Not that demand is much of an issue in the UK. The country is critically undersupplied in homes, where the 120,000 new residences built in 2014 fall short of the 200,000 or more than need to be built every year. In the years following the 2008 recession, lending was tight and builders were nervous. Plans to build were scaled back. But with rising incomes and a number of Government-sponsored schemes that help builders and buyers - in particular, first time buyers - get in the game, building rates are up. Most importantly, buyers are making their moves.
But who exactly is the first time buyer? The following helps break it down:
Ages - The national average age of buyers is 29, which is higher than historical norms but not terrible in the overall scheme of things. In London, first time buyers’ ages have risen from 30 to 32 since the recession.
Wages - Housing charity Shelter teamed with KPMG to identify discrepancies between local housing prices, actual average wages and wages required to get a first-time buyer loan. For example in the South East, the average first home cost £230,000, which requires a wage of £46,000 but the median wage in that district is £24,000. For the UK overall, it’s £202,700 for homes, £40,500 is required and £22,000 is the median wage. The study also found that while 73% of people would prefer to own vs. rent, 69% feel there is not sufficient affordable housing.
In London, where prices are rising quickly, where the number of homes sold for £1 million increased by 25% last year yet the number sold for under £300,000 decreased by 9%, first-time buyers nonetheless were on the rise. How? The Council of Mortgage Lenders finds that in the Capital City that parental help is widespread in deposits and outright purchases.
Children? - A spokesperson for the Mortgage Advice Bureau told the Daily Mail that banks were increasingly asking questions about family plans, particularly when the borrowers had small deposits. They want to know if a working wife or husband planned to quit her or his job if the family adds children. Such borrowers can be refused on a vague, “you don’t fit my criteria,” the advisor said.
Regions - Of course, London is the least affordable area for first time buyers (average home price is £323,333). Northern Ireland (average home price is £80,703) is most affordable, while seven of the top ten affordable areas are in Scotland.
Pessimistic expectations - Propertywire.com reported in April 2015 that an attitudinal survey by the mortgage firm Halifax found 79% of people ages 20-45 believe that banks don’t want to lend to first time buyers; 21% believe it’s almost impossible to get a first-time mortgage. Halifax is quick to point out this is a myth – but perception can be reality.
Sensible - The Office of National Statistics shows that first time buyers have mortgage repayments that consume, on average, one-third of disposable income. In 2007, the height of the last housing bubble, that was closer to one-half of income. So buyers are at least setting themselves up for a realistic loan burden.
It is important to note that this is a recovering market. First time buyers in 2006 numbered 402,800, but fell to 192,300 in 2008. It is now 311,500 buyers (2014) and expected to climb further in 2015. Joint venture partnerships building homes and high rise flats need not worry their properties will sell.
Investing in construction as well as UK land or all other aspects of real estate may be at a critical moment in Britain - the opportunity is great, the market very strong and the overall economy appears to be on the upswing. But as with any investment, it’s most wise to speak with an independent financial advisor to learn how a position can affect a risk-exposure profile.
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