Table of Contents

ABOUT DATAMONITOR

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CHAPTER 1 INTRODUCTION

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What is this brief about?

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Who is the target reader?

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How to use this brief

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CHAPTER 2 THE FIRST TIME BUYER PROBLEM IN CONTEXT

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First time buyers: a dying breed in the UK mortgage market?

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First time buyers are victims of the housing boom

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Average advances and deposits for FTBs have increased in line with housing inflation

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Regionally, the North and West are catching up quickly

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First time buyers also struggle with additional costs associated with purchasing a property

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As a result, FTBs are getting older and staying at home longer

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Buy-to-let investors have compounded the problem

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Buy-to-let's growth has coincided with decline in FTBs

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Is buy-to-let's growth a result of the FTB problem or part of the cause?

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Government initiatives are focused on key workers not FTBs

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The Government is now starting to address housing shortages

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The Key Worker Living Initiative gets a new start in 2004

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The Homebuy scheme cannot help everyone

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Shared Ownership strengthens demand for housing, rather than helping to alleviate the problem

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1.8 million Right to Buy sales in Great Britain

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The Government has started to show an awareness of non-key worker FTBs

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Government's refusal to reform stamp duty compounds the problem facing FTBs

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Are there lessons to be learnt from similar markets abroad?

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What are the implications for the industry?

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A lack of FTBs entering the market causes disequilibrium

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Remortgaging and buy-to-let have kept the market moving so far

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Will FTBs re-enter the market if prices come down?

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Mortgage lenders have had to change their product offerings to attract FTBs

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Ultimately, lenders have had to chase other business

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Remortgages and buy-to-let schemes have increased greatly

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As a consequence, there are relatively few lenders offering specific FTB products

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Do those FTBs that have entered the market in recent years represent a greater risk to lenders?

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How does the situation today compare to that just prior to the last market crash?

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Self-certification mortgages are dangerous for FTBs

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Rising income multiples

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Is default possible?

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Conclusions

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CHAPTER 3 PRODUCT INNOVATIONS FOR FIRST TIME BUYERS

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Introduction

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2004: a slow year for mortgage innovation

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The mass market has addressed the FTB issue to some extent

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...however, this is unlikely to go far enough

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Shared ownership schemes have real potential in the FTB market

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Shared ownership schemes are popular for key workers

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What is the potential for the shared ownership scheme in the private sector?

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Private sector schemes would be in high demand

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But complications with shared ownership means that some lenders have adapted the concept

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The Mortgage Express Step Ladder is the best example from the UK

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The Wizard Head Start Shared Equity Loan: an example from the Australian market

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Shared equity products have also been targeted at retirees

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There are lessons to be learnt for future products

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Shared equity loans pose risks to lenders and borrowers

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The Government could play a supporting role

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Notwithstanding, shared equity schemes are an indication of the way forward

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Guarantor mortgages allow family members to help

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How they work

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Newcastle Building Society Guarantor Mortgage

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For all its strengths, there are restrictions particularly on the guarantor

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1st Start by Bank of Ireland/Bristol & West

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How it works

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1st Start puts pressure on the guarantor

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Family offset mortgages offer relatives a safer way of giving a hand

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Newcastle Building Society Family Offset Mortgage

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The Family Offset feature allows family members to be involved with no ties attached

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Family Offset feature explained

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Family Offset mortgages do not increase the amount a buyer can borrow

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But they are helpful to both the lender and borrower in the long run

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100 per cent plus mortgages can be unsafe

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Because they pose risks to the borrower, 100 per cent plus mortgages have received bad publicity

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There are also risks to lenders

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Northern Rock Together Mortgage

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How it works

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Mortgage Express Max 130 Mortgage

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Although the Together and Max 130 mortgages do free up borrowers' finances, they are still risky investments

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Graduate and professional mortgages take increased future earnings into account

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Scottish Widows Graduate Mortgage

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Taking student debt into account

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HSBC Graduate Mortgage

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Scottish Widows Professional Mortgage

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Joint-ownership schemes allow people to club together to share the costs of buying a home

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Joint-ownership is a developing trend

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Though there are still difficulties to be worked out

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Britannia Building Society Share to Buy scheme

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Share to Buy has some crucial disadvantages

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If things go terriby wrong, co-owners could find themselves in negative equity

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There are other innovations aimed at FTBs

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Rent a Room could be a way for home buyers to borrow more

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Buy-to-let do attract some FTBs

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Interest only mortgages offer help in the short-term

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Interest only mortgages offer help when the time is right

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Borrowers must be aware of the dangers if they do not save enough

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Discounted products for FTBs can give good rates for a period of time

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Self-certification mortgages give non-conventional FTBs a chance to get on the property ladder

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Mortgage Express Self-Certification Mortgage

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CHAPTER 4 THE FUTURE DECODED

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The first time buyer issue is a long term matter

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Prices will slow in the next few years

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Housing will become slightly more affordable but it could be a while before FTBs re-enter the market en masse

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How to best deal with the first time buyer problem

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The Government must play a more active role

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Increasing supply is the most important factor

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Property developers need to innovate

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Barratt Homes offers incentives to target first time buyers

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Ikea provides a good example of how housing associations can work with developers

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Lenders are in a 'catch 22' situation

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Lenders can also influence policy decisions

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Is there a need for cultural change in our view of property ownership?

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APPENDIX

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Supplementary data

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Definitions

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Relevant readings

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Reports

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Future readings

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Reports

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Briefings

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Relevant links

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Datamonitor's custom research capabilities

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The retail banking team

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How to contact experts in your industry

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List of Tables

Table 1: Top ten lenders offering FTB specific products

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Table 2: An example of how Together works

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Table 3: Well known and competitive discounted mortgages, exclusively for first time buyers, January 2005

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Table 4: Proportion of loans for house purchases by type of borrower, 1999-2003

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Table 5: FTB average advance and average deposit have seen great increases in the last decade, while the average LTV has slightly decreased, 1995-2004 (Q3)

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Table 6: Though Greater London and the South East maintain the highest house prices, Wales and the North are growing faster (index at 100 in 1983)

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Table 7: The growth of the buy-to-let sector, 1998-2004 (H1)

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List of Figures

Figure 1: Over the past twenty years, FTBs' share of new loans for house purchases has fallen to 30 per cent, 1984-2004

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Figure 2: House prices have grown at extraordinary rates, 1995-2004

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Figure 3: Growth in house prices have hugely outpaced growth in earnings, Q1 1995- Q4 2004

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Figure 4: The growth in house prices has resulted in ever increasing FTB advances and deposits, while the loan to value ratio has slowly decreased, 1995-2004 (Q3)

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Figure 5: Although house prices are still higher in Greater London and the South East, prices in the North and Wales are growing faster, 1987 - 2004

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Figure 6: The growth of the buy-to-let sector has skyrocketed, 1998- H1 2004

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Figure 7: The buy-to-let market has grown rapidly over the past five years, while FTBs have been effectively priced out of the market, H1 1999 to H1 2004

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Figure 8: The proportion of loans accounted for by FTBs has fallen to historic lows, while increasing house prices have forced FTBs to borrow at higher income multiples, Q1 2000 to Q3 2004

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Figure 9: The 1st Start mortgage enables an individual to borrow a considerably larger amount than they could via a conventional mortgage

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Figure 10: Newcastle Family Offset Mortgage example

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Figure 11: Datamonitor's core consulting capabilities

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