Government Lifeline for First-Time Buyers - Reality or Romanticism?

The government's recent housing proposals, which aim to enable 100,000 families to buy their own property by 2010, do not go far enough says leading consumer intelligence specialist EuroDirect. The company claims that the scheme will fail to help over 98% of young people in the United Kingdom.

Research from EuroDirect, published today, suggests that the problem for first-time buyers is much larger than the government token gesture of £1 billion implies. Although the needs of public sector keyworkers has been the primary focus, the problem is much greater than Gordon Brown cares to admit, and looks likely to be a 'postcode lottery' with keyworkers and other first-time buyers unable to afford housing, battling it out for government support.

The newly-announced Open Market Homebuy Scheme is designed to help young first-time buyers get a foothold on the property ladder by enabling them to purchase a share in the value of their home of between 50 and 75%. The rest of the equity will be split between the government and lenders, and buyers will pay rent on the share of the property that they do not own. When considering the facts however , the £1 billion of taxpayers money proposed by the government last week to subsidise circa 100,000 mortgagees is merely a 'drop in the ocean'.

EuroDirect's research had identified at least 2.5 million young people aged 17 to 25 years still living at home with their parents, which represents approximately 5.3% of the adult UK population. This is based on EuroDirect's UK Young Persons Database only*.

The research has also looked at the distribution of this populous by postal sector in relation to the average house prices** in each sector. With a current national average house price of £182,920, findings suggest that to enable just one tenth of this group to buy their first house with assistance over the next ten years would cost £11.4 billion! (This is based on the government and private sector contributing as little as 25% subsidy between them - just £45,730 to each mortgagee).

Even if the average price of an 'affordable' first-time buyers' house was just £91,460 - half the national average price - subsidies would still have to reach at least £5.7 billion before they could help just 10% of this young population.

And it's not unreasonable to expect a tenth of this population to want to buy their own home as a single person within the next decade. There is evidence from the 2001 Census of a growing trend towards fragmentation of households, with the numbers of single adult households growing year on year. The 2001 Census identified that since the 1991 Census:

  • Single person households have increased by 3.8% (to 30.1% of the UK population)
  • Single parents have increased by 0.8% (to 6%)
  • Married households have decreased by 8.7% (to 50.7%)

If anything the problem looks set to get worse before it gets better as people end up living at home longer until they can afford their own home, or alternatively we will see a drift towards the continental housing market trend where the larger majority of young residents rent their properties.

John Dobson, Managing Director, EuroDirect comments:
"When the number of young people in the UK living at home are considered alongside the many millions of UK households already renting their properties, but who may also wish to climb on to the property ladder, it becomes obvious that the proposed scheme does not begin to address the problem."

"An even greater issue however is the shortage of affordable housing. Mortgage subsidies are not a substitute for more investment in new homes and from what we have learnt from this analysis, the mortgage subsidies proposed to date are nowhere near adequate enough to conquer the UK's escalating housing problems."