Owning and Renting Creating a Divided Britain

The UK is fast becoming a country divided between landlords and tenants. The seemingly never-ending trend of property price increases simply leaves many first-time buyers even further behind in their search for home ownership. With each passing month and each new home ownership survey conducted, many people see their dream of home ownership disappear.

The biggest problem, of course, is the fact that most people’s incomes have not increased in the same way that property prices have in the last 10 years. Home prices have skyrocketed so much in the face of many incomes that, at first glance, home ownership would appear to be only a viable option for higher-rate taxpayers.

Over the last ten years, house prices have risen on average by around 190% across the UK. At the time of writing, the average house price is around £180,000 compared to an average of £62,453 in the first quarter of 1996.

Many of the UK’s top lenders are extremely keen that first-time buyers are not left out of the loop, so they have rebranded and redesigned their traditional affordability assessment methods. The old multiples of income still exist, however they have been increased dramatically to accommodate the imbalance between property prices and income. The new buzz word within the mortgage industry is ‘affordability’ and there are many emerging methods of assessing affordability in addition to traditional multiples of income. Instead of the lender using a multiple of income to assess your eligible debt level, many other factors are taken into account, such as expenses and future earnings prospects.

Revenue multiples close to 5 are quickly becoming commonplace. In October 2006, Abbey became the first major High Street lender to announce that it offered an income multiple of 5x salary.

Today, many first-time homebuyers are taking on bigger mortgages than ever, often relying on parents for help or even going out to clubs with friends. The shared ownership option is also an attractive proposition for many.

They are borrowing larger amounts than ever before, making use of shared ownership schemes, partnering to buy, or relying on parents for deposits and guarantors.
Shared ownership has become a less viable home ownership option in recent years: it has had little impact on the housing market and many shared ownership schemes are limited to key workers within the public sector.

For many potential buyers, the first hurdle that many find so difficult to overcome is finding a substantial enough deposit to place it. There are 100% mortgages available, however these can be difficult to access and can leave the borrower with negative net worth.

It is becoming very popular for many first time homebuyers to take out an interest only mortgage to achieve a lower monthly payment. Combining high debt levels with an interest only mortgage is considered a false economy: all principal remains outstanding at the end of the mortgage term. Interest mortgages have only increased in popularity in recent years. Today, the percentage of all interest-only mortgages is 16%; however, just 3 years ago, the figure was 6%. There is no question that single interest mortgages have a place in the market; however, they should only be considered as a short-term method of achieving a lower monthly payment, unless a payment vehicle has been arranged to run alongside it.