Published: 5 June 2013 | Author: Bernard Clarke
Funding market conditions have got much better over the past year or so, and this has helped improve the availability and pricing of higher loan-to-value (LTV) mortgages. Easier deposit requirements have allowed more creditworthy households to move home or buy for the first time. A modest revival in the number of first-time buyers has been the most visible sign of things getting better. Our figures indicate that there were 218,000 first-time buyers in 2012. This was the best outturn since 2007, although still barely half of what might be considered a more normal level of activity.
Another sign that the market has not yet fully recovered its health is that the profile of those able to buy remains strongly tilted in favour of those fortunate enough to get financial help from family or friends. For example, we estimate that last year only 36% of first-time buyers got on to the housing ladder under their own steam. This contrasts with well over 60% before the credit crunch, when deposit requirements were more modest.
This article draws on findings from consumer research, recently undertaken for us by YouGov plc, to explore to what extent those who want to buy are pinning their hopes on the Bank of Mum and Dad, and what role the forthcoming Help to Buy mortgage guarantee initiative might play. Our calculations are based on a poll conducted by YouGov plc 2013, with a total sample size of 8,183 adults. Fieldwork was undertaken between March 13 and 15, when 4,045 people were surveyed, and March 25 to 27, when 4,138 were questioned. The figures have been weighted and are representative of all UK adults, aged 18 and over.
We focus on those individuals who state that they would ideally like to buy in the next two to three years. Where it offers useful insights, we contrast the position of would-be genuine first-time buyers with that of existing home-owners (see boxed article).
Current and past property ownership
The personal circumstances and housing careers of individuals have become less straightforward, compared with previous generations. Adults are now much more likely to experience changes in household make-up and switches between different tenures (see our earlier article, Fuzzy households, fuzzy tenures).
Our latest YouGov survey suggests that two-thirds (67%) of British adults currently own some residential property. While 59% of adults own one residential property which is also their current home, a further 6% of adults said that they own additional residential property as well as their current home. The remaining 2% own residential property but not where they currently live. This may include, for example, cases where people have inherited property, or bought a property but need to live or work elsewhere.
Among the remaining third of the GB population, most have never owned residential property, although a minority, representing 6% of all adults, report that they have owned property at some point in the past despite not doing so currently.
In practical terms, this means that more than a quarter of individuals living in rented accommodation have in fact owned residential property at some point in the past or do so currently (27% of private renters, and 28% of social renters).
The ability to exclude these individuals from analysis is potentially useful, as it allows us to focus on those who would be genuine first-time buyers if they were to purchase. The approach is not watertight, given that individuals with no experience of home-ownership may partner with someone else who has, but it does nevertheless offer some helpful insights into the circumstances of genuine first-time buyers.
This represents something of a bonus, as most of the industry data we have, purporting to relate to first-time buyers, in fact also encompasses those returning to owner-occupation after a spell in some other tenure or living outside of the UK. A decade ago, such "returners" were thought to account for about a fifth of FTBs, although the proportion may well have been somewhat higher in recent years.
We know little about returners, except that they have a somewhat older age profile than genuine first-time buyers, reflecting the fact that most have owned residential property in the past. The circumstances of returners are likely to be disparate, although it seems reasonable to conjecture that they may face different affordability constraints, to the extent that they currently have, or have accumulated from the past, some housing equity.
This complication cuts across our previous analyses of assisted first-time buyers. Our early reports sought to minimise the possible distortions from returners by focusing on the under 30s. But, more recently, our approach has changed to assessing how many first-time buyers are likely to have got on the housing ladder under their own steam. The residual cohort represent a mixture of assisted first-time buyers and returners.
An ability in this paper to distinguish genuine first-time buyers from others yields useful insights concerning their affordability hurdles.
The need for financial help
As we reported in the recent article, Still aspiring, about 44% of British adults would ideally like to buy a new home during the next two to three years.
The nominal appetite to buy a new home therefore appears very strong, especially allowing for the fact that existing home-owners are much more likely to say that they are happy living where they are, and so are less interested in moving home.
Unfortunately, the ability to do so appears to be much weaker, with a little over a third (36%) of those British adults who would ideally like to move thinking that it is likely that they will do so.
Chart One: Percentage who think they would be able to buy a new home
Among those respondents who would ideally like to buy a new home, we see that nearly half of existing home-owners (46%) believe that they would be able to buy. This is double the proportion of those who would be buying for the first time (23%). Although not separately identified in Chart One, those in social housing appear the least confident of any group about buying.
While the YouGov research identifies a wide range of factors affecting the perceived chances of buying a new home, insufficient savings is the one most commonly mentioned by respondents (by 48% of those who would ideally like to buy, and by 64% of those who are potential first-time buyers). The inference that deposit constraints loom large in framing people’s perceptions about their ability to buy a home fits well with the prominent role ascribed to the Bank of Mum and Dad in recent years.
Our YouGov research specifically asked respondents if they thought they would need financial help from parents, other relatives or friends if they were to buy a new home, and how likely such help was to be forthcoming.
Among those who would ideally like to buy a new home during the next two to three years, the reported need for financial help was appreciable - 36% reported that they would be likely to need financial help from parents, other relatives or friends.
Chart Two: Percentage who think they would need financial help to buy a new home
Potential first-time buyers are much more likely to signal a need for financial help (53% of those wanting to buy) than existing owners. Reassuringly, the inverse metric, that 32% of would-be first-time buyers expected not to need help in order to buy, sits comfortably with CML estimates that 36% of first-time buyers in 2012 managed to buy unassisted.
Nevertheless, even among existing home-owners, the perceived need for financial help appears considerable, with just over a quarter of existing home-owners (26%) stating that they were likely to need help from family or friends. This provides clear evidence that second steppers and others also face challenging affordability hurdles in order to finance house moves (see Why are "movers" not moving? for a fuller description of the factors influencing house move decisions).
And as one might expect, our research findings indicate that, regardless of tenure, the perceived need for financial help from parents, relatives or friends is strongly correlated with age – younger respondents are more likely to signal the need for such help. For example, 51% of those aged 18 to 24 stated that they would be likely to need financial help.
The link between financial help and ability to buy
With such large proportions of would-be home buyers looking for financial help from parents, relatives or friends, a key question is whether or not such assistance is likely to be forthcoming, and how this influences the perceived likelihood that they will be able to buy a new home.
Our calculations based on the survey findings point to a considerable mismatch between those looking for financial help and those who believe that they will get such help.
Less than half of those who would like to buy and would need help expect that they will get it (43%). As a broader percentage of all those who would like to buy in the next two to three years, nearly a fifth of respondents (19%) say they would need financial help, but don’t believe that it will be forthcoming – see Table One.
The picture becomes even more challenging if we contrast would-be first-time buyers with existing home-owners.
As well as being twice as likely to need financial help, would-be first-time buyers are less confident about such help being available, with the result that 29% of all would-be first-time buyers believe that the help they need will not materialise.
By contrast, current home-owners feel less overall need for help and are more confident that they will get help if it is needed. As a consequence, only 12% of those hoping to buy who say they would need financial help, do not believe that it will be forthcoming.
Table One: Percentage of adults needing and getting financial help
|Unlikely to need help||Likely to need help|
|Likely to get help||Unlikely to get help|
|Current home owners||64%||26%||13%||12%|
There appears to be a clear and strong link between an expectation of parental help and getting on to the housing ladder. Nearly half of those needing and expecting help (48%) see themselves as being likely to be able to buy.
Indeed, those who need and expect help appear to be more confident in their ability to buy a new home than their counterparts who do not need such help. Intuitively, this appears to make sense, as getting help to put together the deposit removes what for many borrowers will be the key affordability hurdle.
By contrast, the absence of such help, when it is needed, appears to cast a particularly strong negative effect on perceived ability to buy.
Help to Buy
We asked respondents to our recent YouGov survey what difference better availability of low-deposit mortgages would make to their chances of buying a new home. This provides us with some early insight as to how the embryonic Help to Buy guarantee scheme might improve ability to buy.
One key message is that those who would like to buy in the next two to three years are more optimistic than respondents generally about such an initiative, with 47% stating that lenders offering more mortgages that only require a low (5%) deposit would improve their chances of buying a home to some degree. This compares to 34% among all adults.
Other findings based on our calculations are that out of those who would like to buy, potential first-time buyers are more positive than existing home-owners, with 54% of potential first time buyers saying it would improve their chances of buying a home, compared to 43% of current home-owners. Those needing financial help are more positive about such an initiative (with 59% saying it would improve their chances) than their counterparts not needing help (where only 37% say it would improve their chances).
And although those currently unable to buy in the next few years are positive, generally speaking they are somewhat less so than respondents who already think that they would be able to buy.
While there will be many factors at play in the individual’s house purchase decision, the deposit constraint, and the ability or otherwise of family and friends to help address it, continue to loom fairly large. This problem of insufficient savings for a deposit is by no means limited just to first-time buyers.
The fact that an increased reliance on the Bank of Mum and Dad over recent years has, until recently, gone hand in hand with sharply reduced numbers, illustrates that there are material limits to how much parental help can deliver, both in terms of how many parents are in a position where they can offer help and the depth of their pockets.
Our YouGov research illustrates that many parents (or other family members or friends) may be unable or unwilling to help at all, or not able to help as much as would be needed.
Potentially, this is where Help to Buy might come in. While at this stage the policy remains rather sketchy in detail, it does in principle have the potential to ease some of the expectations and pressures on the Bank of Mum and Dad, extend the range of circumstances where more modest financial help can still be of practical worth, and enable more households to get on to the housing ladder under their own steam.