Affordable Housing in Birmingham and the Impact of the 2021 Budget for First Time Buyers

Mar 11, 2021

By Kristian Gath & Josh Pritchard

In the March 2021 budget, the government announced plans to support some of Britain’s largest lenders to offer a government-backed 95% loan-to-value (LTV) mortgage. Whilst this is not exclusive to first-time buyers, it is of particular importance to those who might otherwise have struggled to put together the 10% minimum deposit amidst the backdrop of job losses and stagnating wages. With the announcement that the stamp duty holiday has also been extended until the end of June, Estate Agents will be required to ensure that their properties are ready for market by the 23rd March 2021(1). Following the publishing of the budget, the online property listing website, Rightmove, has reportedly observed an 82% increase in traffic suggesting a rise in speculation for potential new buyers(ibid).

When assessing the problems within the housing market, this could be seen as a crucial stimulus in turning what Prime Minister Boris Johnson called “generation rent” into “generation buy”. The average age for those who have been able to put together the deposit for a mortgage is between 29-34 years of age(2). However, the correlation between the growth of wages to affordability of property is not evenly spread across the UK[1], with the latter outstripping the former. This can be clearly seen in this interactive graph (please click image) that details property price to earnings ratio(3):


Fig 1: Housing Affordability in England and Wales

The ONS provide the following conclusions:

  • Since 1997 housing affordability has worsened overall. Over the last two decades, affordability has worsened the most in London, which is driven largely by increasing house prices
  • In 2019, 8 of the 10 least affordable local authorities in England and Wales were in London, with one being in the surrounding South East region and the other being in the South West. The most affordable local authorities in 2019 were in the North West, Wales and East Midlands

Similar findings can be attributed to first-time buyers in isolation. Whilst this ONS dataset on housing affordability is from 2017(4), the trends will be broadly the same, and this is what the 95% LTV mortgages will look to redress. They conclude:

  • London was the least affordable region for prospective first-time buyers in 14 of the last 19 years
  • The North East was the most affordable region for first-time buyers for 18 of the last 19 years

In 2019, high-street lender Santander surveyed 5,002 participants aged 18-40 who do not own a property. It paints a pessimistic picture for prospects of home ownership and accessibility for first-time buyers. Within the survey they found:

  • 70% of participants believe that home ownership is unattainable for them, in spite of 51% citing it as their top life goal. Nine out of ten young adults aspire to own a home in the future
  • 64% believe that home ownership will continue to fall in the years ahead

Data from the Land Registry House Price Index and the Office for National Statistics shows house prices outstrip wage growth for 25-34 year olds by 47% to 19%, making saving for a mortgage even harder than before. The average first-time buyer is now 34 years old, up from 29 in 2007, according to the English Housing Survey. 40% of respondents had children which speaks to how it is becoming more difficult for couples to get onto the property ladder before starting a family. Within Santander’s survey, 30% of respondents cited raising a deposit as the main obstacle to buying their first property. 15% had difficulties in getting a competitive mortgage based on their current income. 12% experienced difficulties due to poor credit history and 11% felt that they were unable to find a property in their preferred area due to the prohibitive cost of local housing. However, there are concerns that the new LTV mortgage guarantee scheme will succeed only in creating a housing bubble similar to that which occurred following the introduction of Help to Buy in 2013, inflating house prices and compounding the problems of first-time buyers who perhaps cannot put together the deposit required, even for a 5% mortgage.

Buyers in London and the South East are likely to benefit the most from the cut in Stamp Duty, as higher average prices here can accrue savings of up to £15,000. Since December 2020, 234,000 properties have been sold, with 1 in 5 of these located in the South East of England. According to a 2021 Zoopla study, the average house price across Greater London is £487,900 (other estimates put it as having gone above £500,000 for the first-time this year) and near double the English average, meaning a saving of close to £15,000 on each completed transaction. By contrast, given house prices in the North West and Yorkshire & The Humber, their stamp duty savings amount to around £500(5).

Figure 2

Figure 2

But how might these policies impact the residential property market in Birmingham? As indicated by figure 1, in the West Midlands it is apparent that property sales in Solihull will benefit the most from the extended stamp duty holiday. In Birmingham, the average sale of properties is approximately £197,705. The average indicated in figure 1 appears higher than is the case due to the effect of house prices in Sutton Coldfield, which, during the first two quarters of 2020 were on average 58% more expensive than the rest of the city. The impact of stamp duty also varies greatly when we consider sales by Birmingham ward. Out of Birmingham’s 69 wards, 43% have average property prices of between £250,000 and £500,000(6,7) and therefore could benefit well from the stamp duty holiday, the table below highlights the top 10 selling wards in Birmingham alongside their average property prices.

Ward 2020 Prices Sales
Oscott  £ 250,000.00 303
Hall Green North  £ 315,997.50 298
Sutton Vesey  £ 443,500.00 273
Sheldon  £ 248,750.00 271
Erdington  £ 293,500.00 266
Harborne  £ 602,497.50 266
Longbridge & West Heath  £ 194,500.00 246
Quinton  £ 361,500.00 244
Sutton Walmley & Minworth  £ 382,500.00 241
Moseley  £ 469,500.00 236

The extension of the stamp duty holiday in combination with the introduction of a new 5% deposit will make up to 4% of Birmingham’s housing stock more affordable for first-time buyers(6,7). This should be a welcome announcement for buyers in Birmingham (despite its limitations), particularly those who have struggled to save the average 10% deposit that is requested by most lenders(8). Since 2007, the average age of a first-time buyer has increased from 29 to 34  years old(2). However, with the introduction of a new 5% deposit scheme for first-time buyers, the housing market should prepare to open up to a potential 18-20% increase in first-time buyers(9). The introduction of the 5% scheme will be more accessible to first-time buyers who are buying as a couple since, according to consumer experts,, lending is likely to be capped at 4.5% of a buyer’s salary(4). A single 22-year old earning £22,000 a year can expect to be able to borrow against a mortgage of around £99,000 which requires a 5% deposit of £4,950. Since the average deposit required in Birmingham against a 95% LTV is £9,885 access to the property market for first-time buyers will favour those buying together. According to recruitment agency, Reed, the average graduate salary in Birmingham is approximately £19,932(10)2. Therefore, it would be reasonable to expect a couple earning an average salary, saving £6,877 a year to take up to 1.4 years to save for their first deposit when using this scheme. However, the introduction of the 5% scheme and the extension of the stamp duty holiday is not the only mechanisms that have been put in place to help make housing more affordable.

With the help of shared ownership, buyers do not need to wait until they have saved the 5% deposit against a 95% mortgage, but can instead opt to take out a mortgage against 25-75% the value of the property with the remainder being rented to them(11). Typically buyers would need to take out a minimum of 5% deposit against the share of the property that they will own and rent will be charged to the buyer at 3% of the remaining equity held by the housing association(12). Since 2015, there have been on average 9,045 properties developed for shared ownership(13). It has been suggested that the shared ownership scheme will be expanded to 18,000 properties per year between 2021 and 2026 as part  of the Government’s £11.5 billion commitment to their Affordable Homes Programme(14). As of 2020 only 157,000 homeowners occupied shared-ownership properties which represents around 1% of all tenures. Generally, shared-ownership has prioritised access to groups who have previously found it difficult to access the property market (ibid). Combined, all three schemes contribute to the property-led economic recovery that has been envisioned by Central Government following the wake of the Covid-19 pandemic.

[1] This ratio is calculated by dividing the average value of property in the area by the average gross annual earnings of the residents

[2] The average cost of a property in the U.K. is currently £231,855(15), so a 5% deposit would be £11,592. The time taken to save a deposit has been calculated by adjusting the salary to indicate the take home pay and assumes that a potential buyer might reasonably save around 20% of their take-home salary for a deposit when following the 50/30/20 (needs/wants/financial goals) budgeting strategy.

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