Falling property prices and record low interest rates are combining to make homes affordable again for first-time buyers. Housing affordability has trebled since 2007, according to the latest survey by Halifax, meaning that property now typically costs a little more than four times the average earnings compared with nearly six times earnings in July 2007.
One in five transactions in the first quarter of this year in London was below the £175,000 stamp duty threshold, showing that better-value homes are widely available.
New-build flats in well-connected parts of the capital now cost from £135,000, a level not seen since 2000. This means that buyers with a low budget whose only option used to be shared ownership can now purchase a home outright.
Moreover, the number of lenders offering mortgages in excess of 90 per cent of the property’s value has risen to 31, reports website moneysupermarket.com, a positive sign for buyers struggling to raise a deposit, which remains the main obstacle to getting on the property ladder.
'Stratford, Hackney, Crystal Palace and Streatham are still the least expensive areas'
Traditionally, south and east London have been the cheapest places to buy a home. London-wide estate agency Winkworth says Stratford, Hackney, Crystal Palace and Streatham are still the least expensive areas, despite having a future “transport dividend” because of the East London line Tube extension. In these places, one-bedroom resales start in the £120,000 to £130,000 price bracket. In north London, only Palmers Green is on a similar price level.
Square foot values, the formula used by surveyors to price property, have dropped below £500 a square foot in a number of central areas ringing the congestion charge zone — places such as Kennington, Whitechapel, Elephant & Castle, Shoreditch and Rotherhithe — meaning new one-bedroom flats can be bought for less than £250,000.
The next cheapest location is Hendon, where the entry price is about £150,000. In west London, Ealing and Acton are the most affordable (starting price, £180,000).
Lewisham, in travel Zone 2, is a cheap inner-London district worth investigating. The area has 15-minute rail links to Canary Wharf and Charing Cross and is to benefit from a £250 million regeneration project spearheaded by the local council.
Silkworks on Conington Road is seconds from the DLR station. The development of 330 flats packs an architectural punch. Rising to 10 storeys, it is a crisp and colourful building, crowned by a two-storey copper box. Prices start at £199,000. Call developer St James Homes on 020 8469 0077.
Often first-time buyers choose a new-build home rather than a resale because of incentives offered by developers. Paid deposits (usually a maximum of five per cent of purchase price), legal fees and stamp duty refunds are widely available. Increasingly, too, financial help is coming from parents who are releasing cash to invest in property — a tangible asset — at a time when interest on savings is so low. Sometimes it is an outright gift to their offspring, or the parents may become joint owners of the property.
The latest “state of the nation” report by the Office for National Statistics, reveals that the proportion of 20- to 34-year-old men living with parents last year rose to 29 per cent, or 1.8 million. The number of women of the same age group rose to 1.1 million, or 18 per cent.
Such is the desire for an affordable home that for most first-time buyers getting on the property ladder is more important than marriage and having children.
Indeed, first-time buyers are so desperate to achieve their goal that they will club together with someone else (not necessarily a relative or friend or even someone they know) in order to be able to purchase.
NEGOTIATED WITH THE DEVELOPER
‘Islington is where I wanted to live’
Marine surveyor Dan Griffiths moved to London in August 2007 after graduating from Southampton University and getting a job with a City-based shipping charity.
“It was at the peak of the boom and buying wasn’t a realistic option for me. Prices were ridiculously high, especially in Islington where I wanted to live.”
Dan moved into private rented accommodation in Bromley and decided to wait for the market to turn. “I wasn’t expecting a crash but I thought there was a good chance prices would fall.”
Eighteen months later, with family help, he has been able to fulfil his ambition to buy in Islington. Dan, 26, is soon to move into a brand new one-bedroom flat at a development called Northpoint in Essex Road, N1.
He negotiated a reduction of several thousand pounds on the £220,000 asking price and, armed with a 20 per cent deposit, managed to secure a four-year fixed rate mortgage at 5.29 per cent with lender Woolwich.
Because he sometimes works abroad, Dan says he wanted the convenience of a low-maintenance, lock-up-and-leave new property and no unexpected extras.
He commutes to his Fenchurch Street office by motorbike, which takes 10 minutes. The development of 32 flats operates a car club.
“I never thought I’d say I’m looking forward to having a mortgage but it’s great to have my own place. Renting was like paying money into a black hole. I get a good overtime allowance that I’m putting to one side and will use to help pay off the mortgage.”
‘It’s ideal...I don’t have to commit to buying’
After living in a string of privately rented properties over the past six years, and unable to save a deposit to buy a home of her own, charity worker Amandeep Holti believes she now has the best of both worlds.
Last month, Amandeep, 34, moved into a newly-built two-bedroom split-level flat in the Beaux Arts Building, Hackney, courtesy of a “rent-to-buy” scheme offered by Family Mosaic housing association.
Under the scheme, Amandeep pays rent of £950 a month. If in two years’ time she decides to exercise her option to buy the property, currently valued at £227,500, 75 per cent of the rent she has paid over this period will be deducted from the purchase price. If the market value is lower then, she will be able to buy the property for the cheaper price.
“It’s an ideal opportunity. I don’t have to commit to buying but if I choose to do so I have the reassurance of knowing that rent paid is not money down the drain.”
“The rent I pay is fair. As things stand at the moment, I couldn’t afford to buy a home of such standard in this location.”
‘I assumed key workers had priority’
For 10 years, Jodie Banaszkiewicz lived in shared houses in London because she was unable to afford her own home. “I had given up all hope. Prices were spiralling and I found it impossible to save up a deposit,” says Jodie, a publicist for a small independent record label.
Her opportunity to buy came via NewBuild HomeBuy, a government-backed part-buy, part-rent scheme. “I assumed key workers had priority but applied anyway and to my surprise got an email back saying I qualified. I did lots of research, checking out different areas and developments.”
Jodie, 29, settled for Bolt House, a canalside scheme near London Fields, Hackney, provided by Metropolitan Home Ownership. She bought a 30 per cent stake in a one-bedroom flat priced at £230,000, and plans to buy more equity when her salary increases.
“There’s a real community of residents because everyone is a first-time buyer and we all moved in at the same time.”
WHAT YOU NEED TO KNOW
By Jane Barry
There are now six government schemes offering homes to first-time buyers earning up to £60,000. Your local HomeBuy Agent will give advice on which might suit you best. But here’s an at-a-glance guide.
These schemes enable you to buy your home outright. You raise a mortgage for a percentage of the property and the Government lends you the rest. You can pay back the equity loan at any time but must repay it if you sell, as a percentage of the market value at the time of sale.
EQUITY LOANS ON PRIVATE MARKET HOMES
MyChoice HomeBuy: you choose a property, old or new, on the open market and with this scheme, run by a consortium of housing associations, you are entitled to an equity loan of up to 50 per cent. Interest of 1.75 per cent is charged for the loan, with yearly increases pegged to the Retail Price Index, plus one per cent.
OwnHome: like MyChoice, this scheme, run by housing association Places for People, lets you buy on the open market. The equity loan of up to 40 per cent is interest-free for five years. Interest is then at 1.75 per cent for five years, rising to 3.75 per cent thereafter.
EQUITY LOANS ON NEW-BUILD HOMES
HomeBuy Direct: offered by developers, backed by government funding. The equity loan is up to 30 per cent, with a five-year interest-free period. Interest is then 1.75 per cent, increasing yearly by Retail Prices Index plus one per cent.
This is joint ownership with a housing association. The starting share is usually 25 per cent but you can buy more shares until you own the property outright (called staircasing). You must pay back your share if you sell, plus any increase in its equity, and the housing association may reserve the right to nominate a buyer.
NewBuild HomeBuy: shared ownership on a new development.
Social HomeBuy: shared ownership of the council or housing association home you currently live in.
Rent a new-build home with the option to buy a share, or the entire property, at some later date. Rent-to-buy is offered only by some housing associations and, although the generic government name for this type of scheme is Rent-to-HomeBuy, in practice it has various different names — Try Before You Buy, UpToYou, Rent Now Buy Later. Terms also vary but most schemes allow you to rent at 80 per cent of market rates, with the chance to buy a share of 25 per cent or more.