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Chart of the Day: the 44 year old first-time buyer

The housing and mortgage market will never be the same again, says David Miles.


by Chris Marshall on Nov 23, 2011 at 11:45

‘Imagine we start in a world where it is possible for a first-time buyer to borrow 95% of the value of a property. Suppose prospective homeowners typically start saving for the deposit on their first property when they are 28 years old, that they save 5% of their annual income and that the average price of properties bought by first time buyers is four times their annual income at the point they buy. Then it takes four years for prospective buyers to accumulate a deposit of 5% of the average house price.

‘In this example, the average age of first time buyers is 32 years assuming that they only need to have a deposit of 5% – as was quite usual before the crisis.

‘Now think what happens when banks require a deposit of 20%. Assuming no change in saving behaviour, it takes four times as long to save the deposit (16 years). The average age of a first-time buyer would then rise to 28 + 16 = 44 years.’

That’s from David Miles, a man who knows a thing or two about the housing market. The 20% deposit requirement is the reality right now, Miles, a member of the Bank of England’s Monetary Policy Committee points out.

Miles says:

'The most straightforward option is for prospective buyers to postpone their purchase, while they save more to accumulate a larger deposit. As a result the average age at which people would buy their first home will rise, and the share of owner occupied houses will fall.’

Miles’ central message is that the economy may recover from the crash, but the housing and mortgage market will never be the same again.

Read why David Cameron's plan to help first-time buyers is doomed to fail

15 comments so far. Why not have your say?

Jayzee Cole

Nov 23, 2011 at 12:38

How about a special savings scheme for first time buyers that is linked to house price inflation that is tax free and usable only as a deposit.

If the saver wants the money for other use they can, but lose the tax relief.

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Nov 23, 2011 at 12:54

How about getting the money back from the people who printed it during the insane 1997 -2003 Blair government fueled 300% price explosion and the ensuing financial bloodbath which followed, and which is the root cause of the current problems in ALL financial markets, having been distorted beyond belief by the billions in fake money produced during the period ?

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Nov 23, 2011 at 13:04

The old system used to be this:

(1) As soon as you had a good income you started saving, usually in a building society, and usually at a rate higher than 5% of income

(2) After a few years the building society could see that you were a regular saver and would be ready to consider you for a mortgage. They didn't need to do security checks on you; they KNEW you.

(3) When you applied for a mortgage the most you could expect was 80% loan-to-value (ie, a 20% deposit) and the repayments had to be within your ability to pay - which the building society could judge from the savings you had been making. Lending rarely exceeded about 3 x income

(4) The population was smaller and although housebuilding always seems to have lagged behind demand things were in a more reasonable balance so scarcity did not drive prices too high

(5) Most mortgages started off as 15, 20 or 25 year terms but growth in incomes meant that many people could repay early or, more usually, trade up leaving an entry point for a first time buyer behind them.

Two things wrecked this. First the disconnection between lenders and borrowers caused by the disgraceful de-mutualisation of the building societies and the subsequent securitisation of debt. Second the ludicrously low LTV ratios and high multiples of income that were offered by lenders to people about whom they knew next to nothing. As you would expect these conditions led to rising house prices which created a feedback loop.

And who sat back and watched all this happening with not even a word of caution until Mervyn King's fatuous "flat champagne" speech? Who could have stopped the whole mad merry-go-round in its tracks? The Bank of England, that's who.

Now they bleat about the problems we all face - and people take these idiots seriously, and listen to what they say. What they are saying now is "save" at the same time as they are deliberately creating inflation AND putting their own pension fund money into index-linked Treasuries.

What I say to anyone who will listen is this. Don't save. Don't teach your children to save. The Bank of England is going to destroy our currency and those who save cash will have nothing. The system is bust and it will take a generation to fix it.

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Nov 23, 2011 at 13:07

Citywire - please do a useful article - dig into the Bank of England's pension fund and report on where they are investing. They may be idiots when it comes to the effect their policies have had on the rest of us but they are not quite so stupid when it comes to investing their own money.

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Nov 23, 2011 at 13:14

Where is your 28 year old living whilst, they accumulate savings; with Mum & Dad or paying rent to a Landlord?

Currently, some are paying more in rent than they would be paying a month if they had a mortgage.

Changes to the rental sector must be a factor in making houses more affordable to owner occupiers.

If the earning to propety price ratio is not lowered then the shape of our society will change significantly, and not for the better!

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John @

Nov 23, 2011 at 13:19

"but the housing and mortgage market will never be the same again."

I think it will probably be exactly the same as it was before the boom, and probably in the next few years. We're already down 21% from the high. Give it another 5 years at 5% inflation with nominal prices flat due to the great recession and that's another 25% or so. That would get us to about £125k average which is almost half the values of the boom (£209k in today's money). Hey presto, 3 1/2 times salary multiple again which is about 'right'.

As for the 20% deposit, that won't last forever. Once prices are sensible and start to head up in line with inflation, rather than being propped up by one ridiculous government scheme or another, the banks will be far happier to lend at the correct, reasonable multiples again (not 125% though).

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clive norbury

Nov 23, 2011 at 13:30

Have I missed something in the maths behind the chart? Normally there are two people saving for a deposit on a house not one. I guess this wont halve the age of the FTB but would make it a more realistic and credible chart! Having had to raise the 20% deposit on a house worth £4500 when I were a lad on ten quid a week it is possible! I did have help from my wife though.

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Dennis .

Nov 23, 2011 at 13:44

Just a thought but my Dad bought his first house in 1959 when he was 46 so perhaps the 60's onwards (when I bought) were a bit of an anomaly as far as affordability by young folk is concerned. Up until then he rented. Does anyone else have any family info like this?

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Simon Taylor

Nov 23, 2011 at 13:55

Zaydac is bang on. The BoE pension fund is largely invested it index linked Gilts, the very same inflation proof bond now denied to the rest of us.

Next time Sir Mervyn pops up on the news circuit stating that inflation is under control, I'd like someone to ask him why, if he really believes that, he feels it is so important that his own pension fund needs such cast iron protection from inflation.

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Stephen Griffiths

Nov 23, 2011 at 14:16

Does this piece take into account the extra 30 grand or so of debt that the average graduate is now going to be saddled with? In calculating that the average house-buyer will start saving at 28 does that mean they think they are supposed to clear their student loans in 6-7 years? (Maybe they are already factoring in that nobody but the very wealthy will be able to afford studying in future so we'll have to start shipping in well educated Chinese and Indian graduates to run our country. Hey...maybe they can prop the housing market up.)

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Nov 23, 2011 at 14:46

You are all forgetting the staggering 300% increases of the Blair years 1997 -2003 and the opportunity it gave for many to 'print' billions in 'fake' money.

The affect on the economy has been as unprecedented as it has been/being catastrophic as much of this found its way into stocks/shares, offshore funds, further buy to let (Candy Brothers anyone !).

It created a 2 tier economy consisting of people who are so staggeringly wealthy many will never have to work AT ALL, whilst millions face a lifetime of serfdom.

The effects of the 'fake boom' of the Blair years (effectively counterfeiting) are much more profound than simply house prices being overvalued.

The insidious culture of money printing has seeped into every single pore of the economy and it is never going to be the same again as it was pre 1997.

Politicians are heavily subscribed to it (many have large 'portfolios' of property) and many continue to line their own pockets extravagantly (Blair, Mandelson) even though it is crystal clear that they engineered policies which suited only them and their business cronies.

We have had 15 years of the most unbelievably lousy governments in history and there is no sign of that changing.

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Nov 23, 2011 at 14:47

Rather than provide tax relief - remove it from buy to Let. That will help level the playing field.

Allow banks to assess the risk as they see it - some will do 90% mtges, others will do 80% and a few may do some 100%.

The current situation is because the govt put down suggestions on deposits that have become locked in.

NR failed not because of its mtg book alone but because of its funding model.

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Nov 23, 2011 at 15:42

Current prices are widely held to be at least 20-25% above long term averages. If they fell 20%the deposit required would be 20% less. Therefore FTB will only be 40.

Now instead of just assuming the nasty Banks are just being mean and realise that maybe they require a 20% mortgage as they have factored in a 20% fall. Therefore your average FTB maybe able to house at 20% discount to current prices and then obtain a 95% LTV mortgage as the mortgage market returns to normal. So his deposit requirement would be less than if we tinkered with mortgage lending now.

Gross Mortgage lending is £200bn (>60%) down from peak 2006-07 levels. The only thing holding up prices now is the reluctance of sellers to take losses. As interest rates are low sellers have been allowed to wait and see, hence low transaction volumes. We need to realise post credit crunch this £200bn a year has gone for good.

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Nov 23, 2011 at 15:44

Yes Terminator, we heard you the first time - it's all Blair's fault, with his 300% increase in vlaues, fake money, counterfeiting and general crimes against humanity.

The problem was excellently summed up by Simon Jenkins (no left winger) in the Guardian this morning - Governments since 1979 have targeted state handouts (right to buy discounts, MIRAS this new scheme etc) at house buyers and those already owners, rather than at the homeless or those in the rental sector.

This has warped the market and created the situation we're in today.

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Nov 23, 2011 at 17:39

@S-ville Nor am I a left-winger but I'm certainly glad that you have grasped the ramifications of artificially inflating property values 300% and creaming off billions upon billions in 'profits' over such a short period of time as 5 years.

I thought for a moment that I was the 'mad' one in a world chock full of insanity and greed. Phew , that's a relief.

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