UK Housing Market: No One Wants to be a First Time Buyer

No one wants to be a first time buyer in the UK right now. Apart from those wealthy enough to have 32,000 or more lying around in cash, practically everyone else has given up on getting onto the property ladder and set about trying to make lives for themselves in private rented accommodation.

During the boom, first time buyers could buy on a 100% mortgage. But as prices rose the disposable income that first time buyers were left with was less and less, one unplanned night out and it was mortgage arrears city. At this point less and less could afford to buy at all, the financial crisis was simply a catalyst for a house price crash that was becoming inevitable.

Normally during a correction house prices fall until first time buyers can comfortably afford to buy again. The correction in the 80s lasted six years. This gave first time buyers plenty of time to save, and they could buy comfortably when prices came down into their bracket.

This correction was different: because the recession was a bigger and bolder hit, the government feared that a wave of repossessions like that seen in the 80s would send the UK economy into a death spiral. During the 80s crash homeowners did the same as in this one, battened down the hatches. But the waves of repossessions kept supply up and prices heading down. Thus, by staving off the repossessions the government's efforts cause supply to constrict and prices to stabilise far more quickly.

This was good news for the economy and great news for struggling homeowners, but terrible news for first time buyers.

Not only did prices stabilise and start rising again long before they had become affordable to average first time buyers. But they could no longer throw their lives into a 100% mortgage because now the banks want 10% deposits, and 20% is necessary in most cases, either to get a mortgage or to be able to afford the repayments on the mortgage.

Before if you were earning enough to make mortgage repayments on a 100% mortgage (disposable income aside) the chances are you could buy a house. Now you need to be earning enough to buy a house -- at around the same price in many areas -- and to be able to lay your hands on 10 - 20% of the purchase price, between 16 and 32000 on the UK house price average.

With wages mostly either frozen or falling and austerity biting it is easy to see why no one wants to be a first time buyer in the UK right now.

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