Lack of affordable housing puts pressure on parents

The lack of affordable housing in Britain is increasing the emotional and financial burden on parents as their grown-up children can no longer afford to move out, new research has revealed.

A ComRes poll of more than 1,100 parents with adult children aged 21 to 40, conducted on behalf of the National Housing Federation, found that:

• Three out of ten parents (27%) have at least one adult child aged between 21 and 40 living at home.
• Two-thirds (66%) of parents with at least one adult child living at home say they are doing so because they simply can’t afford to move out.
• Nine out of ten (89%) parents with grown-up children believe there is not enough housing in Britain that people can afford.

This is increasing pressure on family life. While a quarter (26%) say having grown-up children living at home had brought their family closer together, other parents were not so positive. A fifth (23%) say having a grown-up child living at home has caused them stress and a further fifth (18%) say it had caused family arguments. Worryingly, one in ten (8%) parents say having a grown-up child living at home has caused them to fall into debt.

 

Parents in higher income brackets are more likely to have at least one grown-up child living at home. More than a third (36%) of parents with grown-up children with a household income of more than £30,000 have at least one of their adult children living at home, compared to a fifth (21%) of parents with adult children with a total household income of £30,000 or less.

 

More than a third (41%) of parents with at least one adult child living at home say they are doing so because the cost of living away from home is too high, while a further fifth (22%) say they are living at home while they save up for a deposit. 

 

Unless more homes are built, the situation soon could become even bleaker for parents with children in their twenties and thirties. First-time buyer house prices are set to increase by 42% by 2020, while rents in 2020 will be 46% higher that they are today. That means parents could be forced to look after their grown-up children for even longer as they struggle to save up enough money to get a place of their own. 

Rightmove - 8 key tips for buy to let investors

Research the market 

Before you start looking at properties, make sure you know what you're getting into. Look at all theoperty is a long term investment, so you need to consider whether you can afford to have money tied up for this long. If you might need quick access to your money, then this isn't the right investment for you. You also need to think about what happens if house prices fall further and whether you'll still be able to afford the property. Speak to other investors and see what their experiences are.

Choose the right area
When you're researching areas, it's essential that you think about who your potential tenants are and where they want to live. This isn't going to be your family home, so you need to forget about your own preferences. Look at the local transport links, schools and amenities and how these factor into the lives of your tenants.

Check the finances
Before you commit to an investment, you need to ensure that it's affordable. Look at the price of local properties and the possible rental income to see if the figures add up. A good guide for buy to let investors is for the rent to cover 125% of the mortgage, as this provides a buffer if the property is left empty at some stage. Mortgage deals for new property investors will require larger deposits (usually around 25% to get the best deals) and arrangement fees can cost more.

Research mortgage deals
Make sure you look at all the mortgage products available - don't just opt for the first one you find. There are organisations online that list details of the best buy to let deals. It's also worth considering using a specialist broker who can look across the whole market and might have access to exclusive products.

Your tenants
You always need to keep your potential tenants at the forefront of your mind to ensure that it's a property they want to live in. Decide on who you're aiming for. For example families will be looking for something very different from students or single people. Deciding on your target market will help you to focus on exactly what type of property you're looking for. The best types of tenants are those who want to stay for a considerable period of time and make the property their home. However, you also need to think about what will happen if you have unreliable tenants and how the tenants eviction process works.

Negotiate on price
As a buy to let investor you're in an excellent position to negotiate on the price of the property. With no onward chain there's less potential for the sale to fall through and you might be able to move faster. When you find the right property, make a low offer to start with and don't be tempted to pay too much.

Consider the negatives
When you're entering the property investment market, don't just think about the positives. Consider the negative aspects, including whether your investment will still work if prices fall – or demand drops. You need to think about what will happen if the property is empty for long periods, you need to start a tenants eviction process or the property needs essential repairs.

How involved will you be?
Will you want an agent to manage the property or will you deal with everything yourself? An agent will charge a management fee, but they'll take care of advertising, viewing and organising repairs. They will also be dealing with tenants for you - which can be a big plus. If you decide to go with an agent, research all the options and the different fees.

UK house prices up 5.4% say Halifax

House prices are 5.4% higher than last summer as property market activity intensifies, figures from the Halifax showed today.

The lender said prices rose 0.4% in August, the seventh consecutive monthly increase, resulting in an average figure of £170,231.

Prices in the three months to August were 5.4% higher than in the same three months a year earlier, better than July’s 4.6% increase and the highest annual rate since June 2010. The annual rate has picked up from 1.1% in March.

Halifax housing economist Martin Ellis said economic improvement and Government schemes have helped boosted demand, although activity is still being held back by the squeeze on household budgets.

“Overall, house prices are expected to rise gradually over the remainder of the year,” he said.

Halifax’s report follows similar findings from building society Nationwide last week that the housing market revival is gathering pace.

Lenders, surveyors, estate agents and property websites have all been reporting a strong pick-up in activity following the launch of Funding for Lending, which has prompted a big improvement in mortgage availability and rates.

Other initiatives such as NewBuy and Help to Buy have been aimed at giving people with smaller deposits a leg-up.

Half of tenants expect to buy in next five years

In July, 98% of registered tenants wanted to become a homeowner, up 2% from April, and 9% higher than in December, but only 12% are expecting to buy before the end of the year. 

Almost half (49%) are expecting to buy in the next five years, a significant increase from the start of the year. In December, only a third (36%) of tenants expected to buy in the next five years.

And tenants currently unable to become first-time buyers named the inability to save for a deposit as the biggest stumbling block to homeownership. 

More than half (46%) are unable to buy as they can’t save for a deposit, and a growing number of potential first-time buyers (19%) are concerned that rising costs like stamp duty will get in the way – up by a third from just 13% in December 2012.

London & the South East VS the rest of the UK

The concerns over building a deposit are even more apparent in London and the South East. In this region, 55% of tenants who can’t afford to buy are prevented by high deposit requirements, 12% higher than in the rest of the UK. 

This is a result of prices in the capital rising more quickly than the rest of the UK. The latest England and Wales house price index from LSL shows that house prices in London have risen by 7.1% over the year to June, whilst prices in England and Wales as a whole rose by just 2.2%

Transaction costs such as legal fees and stamp duty are more of a concern to tenants in London and the South East, with over a quarter (27%) naming these costs as a key factor blocking them from purchasing property, compared to just 16% in the rest of the UK. 

Worries about having enough income for repayments played a lesser role than in the rest of the UK, concerning just 8% of potential first-time buyers.

David Newnes continues: “It remains a huge challenge for first-time buyers to purchase property in the capital. House prices are more expensive, and the size of deposit required dwarfs that in the rest of the country. It’s the reason why six out of tenants in London can’t afford to buy. 

"And there are further concerns for the London market. Higher legal fees and stamp duty costs are turning further first-timers off buying.”

The profile of a first-time buyer

The average first-time buyer in July was 30 years old, with an annual salary of £36,299 per annum, 4% higher than in July 2012, when the average salary was £34,936.

The number of first-time buyers who were able to self-fund their purchase fell to 41% in July, from 51% in April. 36% of all first-time buyers in the UK received financial help to put together a deposit from parents or relatives, whilst 9% benefitted from an inheritance, and 2% received familial help with mortgage repayments. 4% received financial help from a government scheme such as Help to Buy, up from 1% in April.

Once again, Londoners need the most help to get onto the ladder, with 44% of all first-time buyers in London receiving help towards a deposit, compared to just 33%, and just 36% of buyers able to self-finance.

44% of all first-timers were looking for houses with three or more bedrooms, and the second most popular property type were two bedroom houses (31%). Flats continue to attract far fewer first-time buyers – with just a quarter of buyers looking for flats rather than houses.

Why buy now?

Four in ten (41%) first-time buyers said they were choosing to buy now as they had only recently been in  a position financially stable enough to purchase a property, while a quarter (26%) chose to buy to own a house with their partner, and a second quarter (25%) feel it is time for them to settle down. 

Only 8% bought for investment purposes,  expecting house prices to rise, down from 11% in April.

And first-time buyers are confident that the value of property is set to rise.

Almost half (46%) of UK first-time buyers think that house prices will rise by up to 5% in the next year, while a further two in ten (18%) believe prices will rise between 5% and 10%. Only three in ten (28%) first-time buyers believe prices will remain flat in the next year, while less than 4% believe prices are likely to fall.

First time buyers up 45% on last year

The number of first-time buyers rose 45% year-on-year in July, thanks largely to a sharp fall in mortgage rates,  according to the latest First Time Buyer Monitor from LSL Property Services.

There were 26,100 first-time buyer sales in July, 8,100 more than twelve months ago. It was the highest number of first-time buyers since November 2007, indicating the improvement in the first-time buyer market is gathering even more momentum.

A sharp increase in the affordability of mortgages drove the improvement. The average mortgage rate fell from 4.92% in July last year, to 3.99% this year, attracting more buyers to the market. Rates have now fallen every month for the last year, as banks are passing cheap credit from Funding for Lending onto borrowers.

The cheaper rates meant that mortgages were more affordable for first-time buyers. The proportion of income represented by mortgage repayments fell year-on-year from 21.6% to 20.4%.

	Transactions	Average Purchase Price (£)	Average LTV
July 2013	26,100	£146,726	79.5%
June 2013	25,300	£146,250	79.6%
1 month change	+3.2%	+0.3%	-0.1% (from 79.6%)
3 month change	+40.3%	+8.0%	-0.9% (from 80.4%)
1 year change	+45.0%	+8.0%	-0.4% (from 79.9%)

But there are warning signs ahead, with rapidly rising house prices threatening to price the next wave of first-time buyers out of the market. Deposits now represent a far greater proportion of the income of a first-time buyer, and are rising. The average deposit is now equal to 83.1% of annual income, up 5.0% on July last year – slowing the pace of the recovery in first-time buyer lending.This was a result of rising house prices, which have pushed average deposits skyward, despite banks’ willingness to lend to those with a smaller deposit size.

The average purchase price for a first-time buyer rose by 8% year-on-year in July, and is now £146,726. This was 0.3% higher compared than in June, when the average purchase price was £146,250 and 6.0% higher than the average price so far this year, which was £138,353.

And the average LTV for a first-time buyer remained broadly flat – down 0.4% year-on-year to 79.5% in July, and down just 0.1% from June.

First-Time Buyer Affordability

	Average deposit (£)		Deposit as proportion of income	Average mortgage rate	Mortgage repayment as proportion of income
July 2013		£30,109	83.1%	3.99%	20.4%
June 2013		£29,845	83.2%	4.06%	20.7%
1 month change		+0.9%	-0.1%	-0.07%	-0.3%
3 month change		+13.1%	+6.7%	-0.25%	+0.1%
1 year change		+10.0%	+5.0%	-0.93%	-1.2%

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits. Rates have fallen sharply, and there are good deals to be had for savvy first-time buyers, which has made a mortgage much easier to come by. The uptick in confidence, beneficial to both parties, is contagious.

“But there is a down-side to the good news. There is simply not enough housing stock to match continued demand. If supply fails to keep pace with demand the housing market will become increasingly unsustainable. Prices will rise sharply, and future first-time buyers will be left in the lurch. There is a desperate need for further cheap property in order for the run of success to continue.”