First time buyers desert UK house market

Any market that loses its first time buyers is in trouble. But that is what has happened in UK housing this summer. I was relieved to hear my niece Caroline and her finance Jamues have decided not to buy, and have rented a nice little place to save more for their deposit.

Indeed, this reminds me of 1990 and a warning I got then from Mike Robinson, the late and extremely successful MD of Wilson Connolly, then a large housebuilder. I quoted him in an article for Building magazine as saying that the market had lost with the first time buyer and was doomed.

First time buyer key

After seven years of rising house prices this statement was hardly welcomed in the industry in 1990. But Mike Robinson was right. House prices and the market went into a nose dive in the early 1990s.

It has been going up ever since, aside from the brief correction of the past two years. That alone ought to be a warning. No market goes up forever, and it is a very long time since the last housing slump of the early 1990s.

I will not forget it. My own job as business editor of Building magazine turned from trumpeting the success of builders to being something more akin to an undertaker as I recorded the bankruptcies. My friends who bought homes late in the boom lost a packet, and it took them a decade to recover those losses.

How bad will it get this time? Hard to say. But in the early 90s in London prices fell by around 40 per cent for first time buyer properties. I remember, I was there at the time writing article like this. Normally the higher you rise the harder you fall.

Limited supply

However, the housing market is always somewhat different, particularly in the UK with limited supply – and house starts are now at a record low so the supply is shrinking relative to an always growing demand. That said it is a matter of pricing being out of line with incomes and money available from mortgage finance.

Big deposits of up to 25 per cent are now required and not the ludicrous 10 per cent of the boom. But interest rates are still very low by historic standards, and not until rates are much higher will house prices stabilize. That could take two to three years judging from the 1990s’ experience.