George Osborne’s budget announcement about FirstBuy, the funded-deposit scheme, a £250m package designed to help 10,000 first-time buyers to purchase a new build home. Will it help First Time Buyers? And what is the alternative?
Well it is a good gesture to help the first-time buyers who want to get on the property-ownership ladder, but in reality how much impact it will have?
British Bankers Association (BBBA) figures show that residential, mortgage approvals for the whole of 2010 was 440,000 with an average value of £146,000. So in terms of volume, the numbers targeted to be helped represent 2% of the annual volume.
The help is targeted at those earning under £60,000, so based on average earning multiples, someone earning this amount might be able to borrow 3.8 times salary and therefore buy a property of £228,000. With average prices of £336,438 in greater London and just under £300,000 in areas of the Home Counties, the help will be most sought in areas outside the South East or for smaller properties in the South East.
Whilst these might be the areas to target, but is this the right route? It is encouraging individuals to get onto the property ladder at a time of historically low interest rates, when the only way is up. There appears to be a short window of opportunity, limited to one year to take this deal up. This means someone might just buy a property they want and can afford to buy now, to qualify for the deal, but won’t be able to sustain the repayments over the course of the lifetime of the mortgage.
For individuals wanting to get on the housing ladder, for investment purposes, an alternative route might be considered. Investment in a property abroad, to get a return and uplift in capital growth, in faster moving economies; whilst continuing to rent in the UK until such times as the overseas investment can be sold to help fund a property purchase in the UK, might be a more affordable route. This has been dubbed the BARBie phenomenon in the past (Buy Abroad Rent in Britain). It might be better to become a First Time Overseas Buyer. For example a studio apartment in Istanbul starts at £48,000, in a country that has enjoyed over 7% growth in 2010.
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