House price growth in the year to March 2019 was 1.4 per cent, compared with an average growth rate of 8.5 per cent per year between 2002 and 2007, according to Land Registry data.
This slower rate of house price growth and tighter restrictions on mortgage lending mean it is no longer possible for households to trade aggressively up the housing ladder.
Instead, we have seen homeowners choose to extend or renovate.
Many of those younger households who would normally have bought these properties are instead looking to new-build homes, with a little help from the government.
Government support
While Help-to-Buy is open to home movers, first-time buyers have dominated take-up of the scheme: they made up 83 per cent of all Help-to-Buy transactions in 2018.
171,000 households have become first-time buyers using the scheme since it began in 2013.
The Help-to-Buy equity loan allows a household to put down a 5 per cent deposit on a new-build home and take out a government loan for a further 20 per cent.
As the equity loan is interest-free for the first five years, households can often afford significantly more with the scheme’s assistance. As with low deposit mortgages, this scheme is especially helpful for those households that cannot put down a substantial deposit on their own.
However, things are going to change.
We learned from the National Audit Office in June that 31 per cent of the households using Help-to-Buy could have afforded to buy without support.
Little wonder, perhaps, that the government plans to end the Help-to-Buy scheme in March 2023.
What about the housing crisis?
While today’s first-time buyers can borrow at record low mortgage rates and can take advantage of the Help-to-Buy scheme, there are many more households which still cannot access home ownership.
While it is possible to get a mortgage with a low deposit, banks are limited in how much they can lend households relative to their incomes.
No more than 15 per cent of a lender’s mortgages can be on loans over 4.5 times the borrower’s income.
Given the ratio of average house price in England is eight times average earnings, this means many households still cannot buy.
What happens next?
The broad consensus among economists is that the Bank of England will raise interest rates over the next five years.
This means we can expect to see higher mortgage borrowing costs, even if the rate rises are delayed by further Brexit uncertainty and are modest when they finally kick in. Add to that the end of the Help-to-Buy scheme, and things start to look less rosy for first-time buyers.
