Concern Over Rise in Equity Release

Everyone has heard about the bank of Mum and Dad but there are fears that first time home buyers are skipping a generation and looking to their Grandparents for help with funding their purchase.

These concerns have arisen after reports that the sale of Equity Release products has soared in the six months from January to June of this year. The increase equates to a rise of over 10% from the same period in 2011.

During the first half of 2012, the Equity Release Council report that some £424 million was freed up with 31% of those surveyed stating that the money was to be distributed among their loved ones. With young first time buyers struggling to raise a deposit in order to get onto the property ladder, much of this money is being utilised in this way.

Dr Ros Altman, Saga’s Director General put the issue in blunt terms when she stated that the elderly are living longer and their grandchildren are having to wait longer for their inheritance as a result.

‘The last thing you want as a grandparent is for your children and grandchildren to be thinking, “When is granny going to pop off so I can get my hands on the house?” She said.

Among the concerns expressed by some observers is the theory that many who enter into the schemes are not fully aware of the process and how it works. While the debt involved is only repaid upon death, the outstanding amount can double every eleven years.

With that in mind, the Consumer Credit Counselling Service has advised the elderly to consider their own futures and the potential issues involved before entering into any Equity Release scheme.

‘While equity release to help children or grandchildren get on the property ladder or pay for their education can be gratifying for many, it can be a huge burden for others,’ a spokesman said.

‘There are a lot of costs associated with getting older, and it is crucial that these are factored in to any decisions about equity release.’

Andrea Rozario, director general of the Equity Release Council concludes by asking anyone currently considering an Equity Release product to take independent advice before making the final decision.

‘Advisors are incredibly important when it comes to equity release as not only will they help the consumer to decide if equity release is right for them, but also make sure that they are getting the benefits they are entitled to,’ she said.

What Do You Need to Get on the Property Ladder?

A recent survey carried out by RightMove on behalf of the Guardian has underlined just what First Time Buyers (FTB’s) currently need in order to take that vital first step onto the property ladder. Essentially, it’s claimed that those requirements amount to three key ingredients – a degree, a partner to share the costs and benevolent relatives who are prepared to help.

Over 5,000 FTB’s took part in the survey which found that one in four would be seeking assistance from their parents in order to fund a deposit. However, 53% of those surveyed claimed that they would be funding their purchase alone.

Overall, 38% of those surveyed were educated up to degree level and 30% held some form of postgraduate qualification. While the survey took in respondents of all ages, it was found that, of those between the ages of 25 – 34, 41% held a degree.

The findings were intended to underline just how difficult it is to get on the property ladder as house prices have risen beyond income increases in recent years. In addition, the perception is that lending criteria has made it increasingly difficult to obtain a mortgage but do these results really back those claims up?

You could reverse the headline to suggest that three in four respondents weren’t seeking financial assistance from their parents and for some, the fact that over half of FTB’s surveyed are buying a property alone is a significantly high figure.

Earlier this month, RightMove produced another survey of FTB’s which they claimed had provided some positive results as those buyers came to terms with the economic downturn. The findings revealed that of those looking to purchase a property within twelve months, three in ten were FTB’s and this was the highest level for almost three years.

Reacting to the news, Rightmove’s Miles Shipside said,

“The results come as a welcome surprise, hopefully this three year high in intending first-time buyers will come to fruition.”

“The property market needs this upward trend in first-time buyer activity to continue as first-time buyers perform an essential role at the bottom of the property market food chain. “

Mr Shipside also added a warning that the future for FTB’s was far from certain but, on the face of things, there are two sets of conflicting reports from the same source in the same month. Alternatively, perhaps this just emphasises that there are times when statistics can be viewed in two separate ways.

Affordable Homes Scheme Set to Fall Short

The Governments Affordable Homes campaign, launched in 2011, was designed to get Britain’s home builders moving to provide the supply to meet a considerable demand. However, reports released by the National Audit Office (NAO), suggest that the scheme may fall some 50% below its intended target.

The plan had looked to deliver 80,000 new properties by the end of 2015 but the NAO are not only suggesting that the numbers may be nearer 40,000, they also suggest that due to financial issues, providers may not be able to keep to their agreement and charge 80% of market rent.

The plans, announced in 2010, left little room for negotiation and manoeuvre at the time,

“There are key risks including the fact that more than half of the homes are planned for the final year, with no room for slippage,” said Amyas Morse, Comptroller and Auditor General.

“The final judgment on the success of the programme will depend on how well these risks can be managed between now and 2015.”

Under the programme, different organisations had set themselves up as housing providers and these included local housing associations, local authorities and private companies. The main problem, as identified by the NAO seems to lie with those providers struggling to raise adequate finance to fund the project.

“Some have had to offer additional collateral, generally in the form of assets rather than cash, to lenders because of using financial derivatives to reduce their interest rate risk,” the report claims.

“A survey by Baker Tilly in 2012 found that 63% of registered providers who responded are now considering alternative funding other than traditional banking sources, the most popular being corporate bonds.”

Margaret Hodge will chair the public accounts committee that will examine the report and she indicates that the government will not explain at this stage as to just how many tenants are likely to be affected.

“The department has scrapped the target rent guidelines for this programme, leaving vulnerable tenants increasingly dependent on housing benefits and increasing the welfare bill by £1.4bn,” she said.

“The department has refused to be transparent about just how many tenants will be affected and by how much.”

Margaret Hodge went on to suggest that the scheme would have to be more transparent if there was any hope of it being completed on time.

“My committee will want officials to regularly and transparently update their assessment of the costs and benefits of the programme so that we can hold them to account for the social and financial consequences of their decisions, particularly in light of changes to the welfare system,” she concluded.

The Vital Role of Parents in Property Buying

In recent weeks we’ve looked at many surveys in different parts of the property sector and one of the common themes is the difficulty young people face in buying a property. Organisations such as Shelter have called on more efforts by the government to address issues within the rental market while it’s also being suggested that young people are being forced to stay home for much longer than they would prefer.

Figures released by the Bank of Scotland this week are now stating that the majority of parents are now fully aware that they will need to provide assistance if their children are to stand any chance of getting onto the property ladder.

The findings show that 55% of those surveyed believe it to be essential that they offer a financial hand in this type of situation but the numbers of prospective property purchasers seeking that help has risen dramatically.

The survey concentrated on those between the ages of 18 and 34 and it found that while around 61% were looking for home buying aid from their parents in the 1980’s, that figure had shot up to 84% in the present day. Additionally, it was also found that 30% of young people were receiving aid from their parents to pay rent as opposed to 8% some thirty years ago.

“Much has been said about the bank of mum and dad in relation to the cost of getting on the housing ladder, but it is clear Scottish young adults rely on financial support from their parents for a lot more than this,” said Greg Coughlan, head of savings at Bank of Scotland.

While that quote may mention Scotland specifically, the survey took in 1500 young adults from across the UK so it’s clear that this is a nationwide issue. Aside from buying a first property, those surveyed said that they were also looking for parental aid to pay for other essentials such as a car and university fees.

A separate poll carried out by Post Office Mortgages looked to underline how keen young people were to get onto the property ladder. The survey said that 36% of males and 32% of females aged between 18 and 34 were hopeful of buying a property in the near future.

“All first-time buyers need to make sure they don’t compromise on getting the right mortgage to help them get on the property ladder,” said Mike Cook head of mortgages at the post office.

Mr Cook also went on to suggest that FTB’s should also look at saving a 10% deposit but that is precisely the problem that is seeing those prospective purchasers look to their parents for financial aid in the first place.

A Case of First Time Buyer Beware?

An economist from one of the country’s biggest mortgage lenders has spoken this week about the need for first time buyers (FTB’s) to think carefully about the location of their intended purchase. In particular, it has been suggested that those prospective purchasers are being priced out of moves to certain parts of the UK, particularly London.

“The average Londoner trying to save for their first home has to spend around three-quarters of their income on rent, leaving precious little for savings. This compares to around half [of their income] for the rest of the UK,” said Fionnuala Earley of RBS Group.

In addition, it is claimed that while it takes an FTB 37 months to save a 10% deposit in some parts of the country, that period is extended to 51 months for deposits in London.

If you’re concerned about the variations in cost, depending on postcodes, there are many ways in which you can research any area for prices and suitability of property and they aren’t just exclusive to London.

As far as pricing is concerned, we’ve seen comments from some property experts suggesting that there is a huge discrepancy in some cases between property asking prices and the realistic selling price that a vendor can hope to achieve.

There are, fortunately, many websites where you can find out exactly how much homes have sold for in the area. Zoopla.co.uk for example, have prices going back to 1995 and while the earliest of those might not be exactly relevant, more recent examples should give you an accurate picture of sales figures in that postcode.

As far as suitability is concerned, there are many useful tips that have been expounded by property experts for ages but they remain powerful ideas to help you make up your mind.

Firstly, park the car somewhere and take a walk around the area. Look out for noise while you look at present housing and consider its condition, all of which should give you an idea of the neighbourhood. Remember to take this action at all times of the day and night to get a real feel for where you’re thinking of moving to.

If you’re looking for an affluent area with good schools and shops, it is said that there are key names on the high street that only set up in a town when extensive research has told them that the local clientele are financially disposed to their wares. Those names include Waitrose, Starbucks, Pizza Express and others.

The research involved here may not help you reach that 10% deposit any quicker but it could save you money on your property initially before giving you the opportunity to gauge the area and make sure you’ve made the right choice.

Interest in New Homes Soars

New homes have been firmly in the news of late with government schemes announced that attempt to encourage construction companies and local authorities to build the houses that will meet demand. Now, as we enter the second quarter of 2012, leading house builder Barratt Homes have announced that they have experienced their busiest start to a year for five years.

The increase in activity began with a vastly increased number of searches on the company’s website back in January and this has subsequently been supported by a rise in visits to new sites and reservations on new properties.

As a result, Barratt claim that some sites are selling homes at twice the national average. The company’s figures have also been backed up by Right Move, who confirm a 27% rise in property searches since the start of the year.

Barratt believe that potential buyers are making their move as they become aware that home ownership is more cost effective than renting.

“We believe that one of the key factors is that savvy customers have worked out it’s now cheaper to buy than rent,” said Lisa Preston of Barratt West Midlands.

“We simply can’t believe how busy we are especially at a time when all you hear in the news is doom and gloom. It just feels like the people of Burton have decided to get on with their lives.”

Lisa Preston also added that she believes people are becoming aware that there may never be a more affordable time to buy their own property.

“In recent years many people have had to put their lives on hold but it seems that they are not prepared to wait any longer,” she added.

“Home buyers have also woken up to the fact that with interest rates low and house prices still some way below their peak, buying is more affordable now than many believe.”

Staying in the Midlands, home builder David Wilson have announced the development of six new sites across Leicestershire as they also start to meet an increase in demand.

“The Prime Minister has said again and again that one of the best ways to boost economic growth and get people working is through building more homes,” said Philip Lacey, David Wilson’s sales director for the area.

Mr Lacey also went on to confirm that over 1,500 jobs would be created for local people as a result.

“In addition to the local construction jobs created in building the new homes, the local people who move into the new housing will also spend their wages locally. This translates into a significant boost for local retailers at a time when concerns remain about the national financial picture. It’s exactly what this area needs,” he concluded.

In the midst of government announcements, the claims from these two home builders may just be tangible proof that the housing market, for new properties at least, may show a marked improvement in 2012.

Thousands Trapped By Generation Rent

In recent weeks and months, much of the focus in the property market has been on rental properties and the constant argument between buying and renting. Recent surveys have indicated that in pure financial terms, renting is actually a better option and other positives continue to be highlighted.

On the downside, we’ve seen a rise in complaints about landlords to the Ombudsman and while it seems that property rental is a growth area, it’s been suggested that it’s not exactly a preferred option and there are many who would rather own their home but are simply unable to do so.

A recent survey was conducted by YouGov on behalf of Countrywide, who include an estate agency, a lettings arm and a mortgage broker within their business and are therefore ideally placed to offer an unbiased view of all sides of the market.

The survey of 18-34 year olds found that 45 per cent claimed that the issue of deposit affordability was the biggest stumbling block to buying a home. More tellingly, of the private tenants surveyed, only 32 per cent declared that they were happy where they were and just 5 per cent of tenants claimed that they were delaying a property purchase because they believed that house prices would fall.

“We see first-hand that mortgage deposit and repayment affordability remain the biggest issues facing homebuyers in the UK,” said Grenville Turner, Chief Executive of Countrywide.

“These findings confirm that we are at a crossroad for homeownership, where we could see the next generation becoming a nation of renters without the right intervention from Government.

Mr Turner went on to claim that movement in the property market was so slow that it could go on to have serious implications for estate agents all over the UK.

“Based on current levels of activity, the average home owner moves house once every 25 years as opposed to once in every 12 years,” he added.

“These levels are unsustainable and we call for further support as a strong, vibrant housing market contributes to gross domestic product growth and will dramatically improve the economy.”

In amongst all of these statistics Countrywide maintain that the desire to own one’s own home remains high right across the UK. Throughout the first few weeks of the year we’ve seen figures released relating to property market activity but we seem set for a long period of stagnation if those potential buyers remain trapped in unwanted rental arrangements.

Modest Fall in March Property Prices

The Nationwide have claimed that house prices in March have fallen by just 1% from the figures declared in February and the drop is in keeping with predictions that suggest sideways or slight downwards movement for the remainder of 2012.

While a 1% fall may not seem particularly excessive, this is the first time for six months that figures have dropped on a year by year comparison and that may be seen as significant in some quarters. It also represents the largest fall recorded by the Nationwide for two years.

At present, the Society claims that the average price of a property in the UK is now £163,327 and that equates to a fall of 0.9% from March 2011.

Nationwide’s Chief Economist Robert Gardner went on to suggest that the outlook was likely to remain the same for the next year at least.

“In our view the challenging economic backdrop is likely to continue to act as a drag, with house prices moving sideways or modestly lower over the next twelve months,” Mr Gardner said.

The Stamp Duty holiday which drew to a close on the 24^th of March 2012 is largely being blamed for the slowdown in March and with buyers now having to pay the 1% tax for properties priced between £125,000 and £250,000, this is expected to have a significant impact on figures due for release at the end of April.

However, Robert Gardner went on to suggest that if the Government’s NewBuy scheme were to have an effect and if there were any signs of improvement in the economy, this pattern could yet change.

“This dampening effect on housing market activity and prices may fade over the course of the summer, especially if the wider economic outlook begins to improve and other policy measures, such as the government’s NewBuy scheme, are successful in supporting buyer demand,” he added.

Nationwide conceded that it was somewhat difficult to read the market as it is impossible to tell how many property sales would have taken place if the Stamp Duty window had not been open at the start of the year. Therefore, a clearer picture can only occur over the course of the next few months.

In addition, we have seen Nationwide producing conflicting sets of figures to the Halifax in recent months and the latter’s statistics for March 2012 are still to come.

Overall therefore, it’s a mixed and sometimes confusing picture but with the Stamp Duty holiday finally at an end, figures should finally begin to settle down and give us a more accurate indication.

Stamp Duty Holiday Closure Shouldn’t Deter First Time Buyers

The stamp duty holiday finally came to an end on the 24^th March 2012 and buyers will now have to pay tax at 1% on properties priced between £125,000 and £250,000. The window, which had had been credited with much of the positive aspects in recent property figures is believed to have saved purchasers some £300m and economists are awaiting the impact of its closure with some trepidation.

While some property experts believed that purchases had slowed down prior to the closing of the window, figures revealed today by the Council of Mortgage Lenders (CML) prove that this was far from being the case.

The CML revealed that the number of first time buyers had increased by a significant 23% in January compared with the same month in 2011 and that resulted in £1.6 billion being approved for 13,200 new loans.

In addition, the UK’s biggest HomeBuy agents revealed that a record number of purchases went through on Friday the 23^rd of March, the final day of the stamp duty window, with 129 transactions being recorded.

All of these figures will undoubtedly lead to a spike in property statistics for the first quarter of the year but does it mean that we are heading for a period of gloom as some economists are predicting?

Chris Smith, group direct mortgage manager of the Yorkshire Building Society revealed that his organisation increased its lending to first time buyers in 2011 and he believes that there are still plenty of market options open to them.

“FTBs are important to us – the proportion of our loans to FTBs is seven per cent higher than the market average,” Mr Smith said.

As for the Government, the First Buy Guarantee scheme has been introduced in the hope that it will be more of an incentive for first time buyers than the stamp duty holiday. The scheme is open to FTB’s with a household income of less than £60,000 who can raise a 5% deposit but many industry experts are critical. The initiative was been described in some quarters as ‘window dressing’ amidst allegations that it has an ulterior motive of helping the ailing construction industry.

“This is a very appealing prospect, but Osborne’s scheme won’t go beyond scratching the surface of the problem faced by the vast majority of first-time buyers, as it is exclusively for new-build properties and only around 11,000 buyers will benefit – a fraction of the overall number of potential first-timers,” said Nicholas Leeming of Zoopla.co.uk.

“While the availability of credit is slowly easing, it’s not easing fast enough to help those borrowers who don’t qualify. A step in the right direction these measures may be, but they’re merely window dressing the wider problem.”

One window has closed but has another opened? The remaining nine months of the year will only begin to tell what impact the stamp duty reintroduction and the First Buy Guarantee will have.

First Time Buyers Held Back By Lack of Choice

Figures revealed earlier this month show that there has been a significant increase in mortgage products available to first time buyers in recent months. Those with a small deposit of 10% or even 5% can now take advantage of around twice as many products compared with twelve months ago, according to the financial information website Moneyfacts.

Those statistics would suggest that first time buyers may help to contribute to a tentative upturn in the property market but a further survey suggests a stark lack of choice when it comes to suitable properties.

Miles Shipside of property website rightmove.co.uk also suggests that the problems regarding affordability and the issues of obtaining a mortgage still remain but the most discouraging fact is the paucity of suitable homes.

The survey began by showing an increase of buyers intending to purchase their first home of 1.4% from the last quarter of 2011 in comparison to the previous three months. This also represents a rise of 1.5% from the same period in 2010.

However, the findings also revealed a significant drop in available properties in the same period with traditional first time buyer homes such as flats and terraced houses being in particularly short supply.

“First-time buyer levels remain well below the historic norm of 40%, but a slight increase of 1.4% on the last quarter of those intending to buy for the first-time offers some encouragement for the year ahead,” Mr Shipside said.

“Our research also provides evidence of an emerging new home-ownership challenge in the form of a lack of available properties that would typically be brought to market by first-time sellers.”

Rightmove pointed to a number of factors that contributed to their figures and many reasons as to why more suitable properties aren’t coming onto the market.

“Owners of these property types, typically first-time sellers, are being deterred from bringing their property to market for a number of reasons. A continued policy of forbearance by lenders and low interest rates means that the market is short of forced sellers,” Mr Shipside added.

“In addition, those wishing to trade up are suffering from a lack of equity, lack of confidence to stretch themselves financially and, in certain micro-markets, difficulty in identifying a suitable property that they would like to move to.”

In the current property climate, it seems that good news is always tempered by cautionary advice and while there may be more mortgage products available for first time buyers, they may well have to be patient in terms of finding that perfect property.