Friday, April 07, 2006

Half Of First-Time Buyers Need Help

Up to half of all young first-time buyers may be getting help from their parents to fund their deposits, says a new report...

According to the CML, there's an interesting disparity between the size of the deposits FTBs under the age of 30 are putting down and the level of savings they could reasonably have accumulated in their relatively short lives.

Over the past decade, this disparity has grown - the proportion of FTBs under 30 whose deposits are higher than their plausible savings has jumped from under ten per cent to nearly 50 per cent.

Assisted under-30s tend to have low incomes and buy medium-value properties with high income multiples. However, because they have fairly hefty deposits they also buy with low advances.

This combination means they are less exposed to negative equity (because they have a large deposit), but are still very susceptible to interest rate rises and other shocks (because they have low incomes).

Only Wealthy Can Buy Unassisted
With buyers under 30 who get no assistance, the situation is reversed. Because you need to earn a massive wedge to afford to buy at such a tender age, these guys tend to be well paid.

By 2005, they had the highest incomes in the FTB paddock, a sign, says the report, that house prices have excluded all but the wealthy from getting on the housing ladder without a helping hand.

Unassisted under-30s have the highest advances in the FTB sector and are therefore at greatest risk of negative equity. But because they earn a lot they are less vulnerable to rate rises and other shocks.

First-timer or Not?

The report also looks at those over 30 who are buying for the first time and concludes that not all of these are the real deal - some are "Returners" who have previously been homeowners.

These returning buyers are often classified for survey purposes as first-time buyers because they have taken a break from home-ownership - but they're not really.

Returners tend to buy with high deposits and low percent advances. They buy high-value properties on medium income multiples. This combination puts them at lower risk of negative equity than true FTBs.

True FTBs over 30 tend to have high incomes, high deposits and buy high-value properties. They borrow on medium-level percent advances and income multiples.

The profile suggests that the over 30 buyers are, like the under 30s, made up of assisted and unassisted buyers - the wealthier can go it alone, but the less well off need a financial leg up.

This, perhaps, explains why the deposits they pay are on the large side - 15-20 per cent.

Assistance Sustains Market
The author of the research, CML senior statistician James Tatch, concludes: "For some homeowners, helping out their children with a mortgage deposit may represent an efficient use of funds, in the light of low returns on alternative investments.

"For others, the assistance may not represent an investment decision so much as a case of the family "pulling together" to enable the younger generation into home-ownership.

"We do not know what effects any of this will have on borrowing patterns in the future. While older generations are able to raise funds from converted equity and other sources, the assisted route remains a viable option for many young first-time buyers with willing families.

"But if for whatever reason these sources dry up, the importance of unassisted first-time buyers is likely to increase, and the affordability constraints they face will be brought into sharper focus."


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