OAP, But Still Paying A Mortgage

As the Bank of England put up their base rate by another quarter percent this month, it’s not getting any easier for young people to afford their first homes, but not to worry the mortgage lenders of the UK have been working on this problem, and after years in some dark basement tinkering with the figures and playing with the numbers a cry of ‘Eureka’ could be heard throughout the lending world as one clever sole cracked the problem. Well, maybe I should have left it at ‘cracked’ as a better way of describing it. The thing that amuses me is how fast a bad idea can spread between institutions desperate for the business of the illusive first time buyer, as there seems to be a glut of mortgage lenders jumping on this insane band wagon.

The solution they were so proud of is the 57 year mortgage. Yes you heard/read me right. Not content with the 25 year mortgage that most people take up in the UK they have come up with a brilliant plan for would be home owners. Why not charge you a tiny bit less each month and you could carry on paying them into your old age.

It sounds like a good way of keeping the costs down, surely if you’re going to be paying off a mortgage over such a long time the monthly costs that can cripple some new home owners should be far lower…shouldn’t they? Actually on a £150,000 mortgage (if you’re looking to buy in the South East of the country you’ll be laughing at this point at the shear silliness of the idea of being able to find a property for that figure, but bare with me, it’s just an example) the saving is less than £175 a month, but as you are paying the loan off for more than twice the time the amount you’ll repay is over £275,000 more in the end than you would pay for a standard 25 year mortgage.

Before you run out and get one of these just stop and think for a moment. If you take this mortgage out at the tender age of 18, you’ll not pay it back until you’re 75 years old, and by then you’ll have paid back almost £600,000 for a £150k mortgage. If you retire at 60 or 65 you’ll have to hope that you’re property is worth quite a bit more than you paid for it because you’ll still have 10-15 years of payments still to make.

Of course there are other far more responsible (slight sarcasm) lenders who are offering just 40 or 50 year mortgages, but I think you get the gist of my opinion on this by now.

Understandably this new mortgage type was met by experts with an element of disbelief. Words like “false economy” and “madness” were thrown around like a dog with its favourite chew toy and it’s not surprising to this observer. With the Bank of England predicted to raise its base rate once again at the beginning of 2007 it is possible that first time buyers though desperation might consider one of these mortgages. Please don’t, or if you do make sure they do not lock you in so that in a few years time you can convert it to a sensible mortgage, one where you’ll only pay twice as much as you borrowed in interest!!

More Than 50% Of All First Time Buyers Now Pay Stamp Duty

According to the Council of Mortgage Lenders (CML) 56% of all people buying their first homes now pay more than the £125,000 stamp duty threshold for them. As property prices continue to creep ever higher this percentage can only go up. Surely this is just another blatant indication that the current stamp duty tax is outdated, unfair and negatively contributes to the affordability crisis faced by first time buyers in the UK today.

I’ve been thinking about this for oh all of 5 minutes since I read those statistics in the newspaper today, but let’s do some basic maths: Approximately 1.5 million properties are sold each year, according to the CML around 35% of them are sold to first time buyers and 56% of these are subject to stamp duty. The average value of a first time buyer home in the UK is around £200,000 so we can assume that at the 1% stamp duty level the Government is raking in a monumental £588Million from this tax from first time buyers this year alone!!!!

Surely that’s wrong. Affordability has been the buzz phrase of 2006 and the Government has made so much noise about their HomeBuy (affordable housing) scheme and just how much money they are putting into it to help our first time buyers.

Hmmm, the Government promised us £970Million in the 2006 budget to build 35,000 new low cost homes for their affordable housing scheme, but surely basic mathematics tells us that making first time buyers immune from the ravages of this tax would cost around half as much in lost taxes but would help almost eight and a half times more people.

This may sound a little radical, but at the end of the day we have a hugely outdated tax that has in no way kept up with the cost of the commodity it is taxing meaning that more people now must pay more money to the Government whilst suffering from an increasing inability to afford to buy in the first place.

Whist we’re on the subject of stamp duty tax thresholds, is anyone else baffled by why stamp duty percentages go up in tranches? 1% for properties sold at £125k=250k, 3% for properties sold at £250k-500k, and 4% over this. Having such a slab like system has resulted in price ‘no man’s land’ areas. Because of this the price regions just below a threshold are filled with properties whose owners have found that they have no choice but to drop their price below the threshold to sell so are undervaluing their homes, but this also makes things more difficult for those genuinely at that price bracket to sell, as they do not seem as good value for money as properties worth thousands more than them that have been forced into that price range. The flipside of this coin in that there are also plenty of property owners that go the other way and are forced to avoid the ‘no man’s land’ by opting to overprice their properties. When compared with those properties genuinely in the same price bracket they do not stack up and what’s worse is that if they do find a buyer their mortgage lender is quite likely to down value the property and the sale will fall through anyway wasting much time and money on all sides. The problem is that if the property was put on the market at it’s genuine price the increase in the tax bill for the property being over the threshold will be almost as much as the value of the property over the threshold giving any buyer a nasty taste in the mouth.

Surely it would be fairer for everyone to pay a single percentage, I mean, the more expensive the property the more tax the Government will gain anyway because it’s a percentage after all.

If you combine the first time buyer immunity to stamp duty with a single percentage stamp duty tax for all properties with now lower threshold, then assistance previously aimed at first time buyers can be diverted to assisting families with housing needs to get a far fairer property market than the one we have today, but that’s just my opinion.

First Time Buyers Borrow Record Salary Multiples

According to the Council of Mortgage Lenders (CML) first time home buyers are now on average borrowing 3.27 times their annual income which is the highest average multiple on record. Not surprising when you consider the £29k minimum the RICS (Royal Institution of Chartered Surveyors) says they need to have saved up to pay the deposit and stamp duty on their first home alone.

Are they being serious? How many people do you know who do not yet own their own homes but have £29,000 stashed in the bank? The single biggest hurdle for a first time buyer is finding that deposit money. I come from an era long long ago way back in 2001 when all I needed was a mere £15,180. I only had to wait until I was 31 to do so, and rely on some fortuitous timing with my career change into IT and an increase in mortgage lender acceptance of contractor’s incomes. Without all of that coming together I could well have still been one of the victims of the affordability statistics.

There is a glimmer of hope though. In 2004 the Halifax reported the lowest number of first time buyers in a quarter of a century, and at rock bottom they hit just 27% of the home buying public. Those figures have risen over the last year or so, helped I’m sure in no small amount by the rise in the acceptance of co-buying, a reported rise in assistance from mum and dad, and the higher public awareness of the Government’s HomeBuy schemes, to a level in the late 30%’s (keeping in mind that the 20 year average says there should be around 45% first time buyers buying in the market place). Unfortunately in recent months this has started to slip again and we are back down to the mid 30%’s. Not drastic so long as the downward trend does not continue.

Property prices have continued to rise in the majority of regions around the country and the result has been first time buyers looking for other routes onto the property ladder than traditional means. Many families are beginning to help their kids out by refinancing their homes and putting the increased value of their properties to work for them. The flat-sharing market is still booming as people co-rent to save on living costs hoping to build up their property pot of gold to the magical £29,000 level. And more and more innovative ideas are appearing on the market to help the first time buyer into their own homes. I was talking to a new home builder today who was looking into setting up their own private shared equity scheme to help people buy their new homes in Manchester’s city centre. More and more new home builders are having to consider innovative ways of presenting their property to the starter end of the market, and this can only spell good things for the property newbie out there.

With November on the horizon and the New Year looming, what does 2007 have in store for the property market? Another small rise in the Bank of England Base Rate? Maybe. Property prices continuing to rise slowly but steadily? Probably. An increase still further in the gap between the property haves and the have-nots? Quite likely. But one thing is for sure, we live in a country that is waking up to the realities of an affordability crisis, and we are not sitting back and accepting it. The thinking caps are on and more and more solutions for our first time buyers are surfacing every day to counter this problem.

Buying A University Pad For The Kids

The happy day has come and little Jonny or Jenny is ready to leave the washing machine and food service that is home in favour of life in the real world... ok University first for 3 or 4 years, then the real world. Thousands of young adults head off to higher education each year for an experience that can cost their parents an absolute fortune. (To sound a little older than I really am) Back in my day, we got a University Grant to pay for our accommodation on and off campus, our books and some money in the bank for expenses like... er... paper and pens and other essential things that all students spend their money on (stop the laughing in the back). Today of course there are student loans which mean graduates leaving University enter the 'real world' with the albatross of debt already firmly fixed around their necks.

Buying a home for your kids when they head off to university may sound a little drastic, but there are some very convincing financial arguments to persuade you that it is something to seriously consider.

Buying a property in the right location within your financial means is almost always a good investment. If it's located close to a University campus you will have a steady flow of potential tenants on your doorstep to produce an income. Because you selected the property and ensured that it was safe and sound you can sleep easier knowing your kin are not in some rat infested death trap that they found the day before their semester stated. Buying a 3 bedroom house will enable you or them (given lender permission of course) to rent out the other two rooms to classmates to supplement the mortgage payments. Then when their time at Education High is finally over, you can either continue to rent the property and keep it as an investment or sell it and with a little good luck and judgment have made a profit over the three or four years that you've owned it. With this profit you could potentially see your kids leave University one step ahead of their peers, debt free and unburdened to launch into the real world.

OK, nothing comes with a guarantee, and you've all read the small print on any mortgage agreement or heard it on the TV in an advert for a lender telling you that property prices can go down as well as up. Whether you do or do not make a profit on a property is governed a little by your research and care when searching for the property, not over spending, and buying a home suitable for the purpose of housing students, but quite frankly it mostly depends on luck as nobody can truthfully tell which way the market will turn over a 3-4 year period, but for all the other reasons mentioned it is still well worth considering.

Another thing to consider is that buying the property jointly with your kids can also be a way of giving them valuable real world responsibilities. Give them the job of finding and choosing their tenants, dealing with estate agents or University administration, paying the mortgage and collecting the rent. They are young adults after all, they can handle it, and you are always there to lend a parenting hand if need be. There are some tax issues that you will need to investigate before doing any of this, and you should speak to an accountant about them, but all in all buying a University home for your kids seems like a good option.

More Than Half Of All Graduates Say They Cannot Afford To Buy A Home

A Scottish Widows survey reported on the BBC website today that home ownership was moving further and further out of reach for many ex students, with 1 in 10 of them believing that this is a long term problem they will have to face. But if you're not in your early 20's trying and failing to buy your first home, why should that affect you?

The truth is that it affects us all. The first time buyer is the fuel that keeps our property market moving. Now I don't mean that through some filtration and much grinding we can turn the students of today into the kindling of tomorrow, but without someone to buy at the bottom of the ladder, the people they would buy from cannot sell, and the domino effect of a stagnating market moves scarily fast through the flat/apartment strata to the small houses and millionaires row in the clouds. This is a little over dramatic, but put simply, the few people that can afford to buy the fewer homes will be sold.

That's fine, so we all stay in our homes a little longer and wait it out. But it's not quite that simple. The property market is a major player on the poker table of the British Economy. So many businesses are reliant on the flow of people from property to property, that without this perpetual movement many would fall on hard times, estate agencies, mortgage lenders, builders and property developers, architects and surveyors, removal firms and many more would have to suck it in and make plans to ride it out. Maybe there would be redundancies, certainly there would not be recruitment and another industry is affected. The only thing determining whether the property market grinding to a halt causes a ripple or tidal wave is how long it is before we come out the other side.

Now I for one do not want to see any of the above happening and recognizing the scale of the problem is a big step in the right direction. Thank you Mr Brown for doing just that with your promises in the last budget to help Key workers and first time buyers with the Government's HomeBuy scheme to share the ownership of property and keep the bottom of the ladder moving, but it's not nearly enough as the funds can only stretch so far. That is where the inventiveness of British enterprise steps up to the crease. Rising up to meet the threat are a number of initiatives. Included in these of course is the growth of the co-buying sector, lead by SharedSpaces.co.uk, but a recent addition to the fight is the First Time Buyer Group that because of it's relationships with many new home builders offers all first timers their deposits, stamp duty, legal and financial arrangement fees as well as their survey costs returned to them. As these costs are one of the biggest hurdles in the way of anyone's first purchase we expect to see a huge take up on this initiative, and hope that through initiatives like these that we can change the fate and property perceptions of today's students who are of course tomorrow's home owners.

Mortgage Mates, Property Pals and Home Buying Friends

At some point we've all played the “wouldn't it be nice to live there” game, where we press our noses up to the estate agents window like hungry children eyeing up the cakes in a bakery, wishing we could afford the homes that are way too expensive for us. We all have aspirations far beyond our wallets from time to time, but more and more first time buyers are finding that they simply cannot afford to buy anywhere as property prices in the UK have rocketed to such levels that the first step onto the ladder has begun to look more like an impossible leap.

Now a new breed of buyer has begun to emerge, or maybe I should say ‘evolve’, because that’s what happens when nature finds a way around a problem, who have decided to tackle the issue of affordability head on, they are the co-buyers. If you’ve not been near your TV, radio or favorite newspaper recently you’d be excused for not having heard of this home buying movement. Put simply, co-buying is where two or more people buy a property together to join funds, divide of all the costs, and afford to buy years sooner than they could have done alone. Nothing new there, as friends and family have been doing that for an age now, what is new is the rise in the popularity of searching for your ideal mortgage mate on the internet.

Richard Cohn, Founding Director of Shared Spaces Limited, introduced us to the concept of co-buying with www.SharedSpaces.co.uk, launched in December 2005. He explains, “I flat shared for years before buying, and made some great friends along the way, and it was during this time that I came to the conclusion that was to lead to the creation of SharedSpaces. If you can flat-share with complete strangers with great success, why can’t people take it to the next level and buy together?”

Of course there is more to it than just that because buying is a far bigger financial commitment than renting, but Cohn suggests that with the correct legal framework (a document called a ‘Deed of Trust’ that costs only a few hundred pounds from any solicitor that protects your legal rights and provides a roadmap for the relationship), mortgage payment protection insurance (to protect you and your co-owners from hardship should you loose your jobs or are unable to work due to illness), and time (as much time as you need to get to know your potential co-buyer well enough to call them a friend or a business partner in the process), there is no reason why you cannot have a successful co-buying experience.

SharedSpaces.co.uk has over 2,500 registered members across the UK looking for someone else to buy a property with, joined by a common goal, to fight the affordability gap. Whether you are a key worker or a city high flyer if you’re looking for a mortgage mate, a property pal or a future friend to buy your first home with there seems to be plenty of people to choose from. I don’t know whether co-buying solves the long term problem of property prices rising faster than salaries, but it sure does seem to offer an option for those who have been left behind.