Over the last few years there is no doubt that first-time buyers have been finding it more and more difficult to climb aboard the property ladder. That first rung of the ladder seems to be moving further and further away which has forced many to change their focus to renting property in the short to medium term. However, over the last few days we have seen the Reserve Bank of Australia reduce base rates and the Bank of England is indicating that UK inflation could dip below zero and interest rates could follow.
This begs the question, if investors and those switching properties have been pushing prices higher, who will support the market when these avenues of investment dry-up?
Reckless abandonment of first-time buyers
Despite the numerous amounts of hot air from politicians around the world, first-time buyers have not been treated fairly within national property markets. We only need to look at the UK property market which has remained very buoyant in recent times and left more and more first-time buyers behind. Indeed, as we touched on above, the fact that required deposits have increased and prices have moved higher is pushing more and more potential “first-time buyers” towards rental properties.
The reality is that nobody seemed too bothered when the market was flying high and investors from within the UK and overseas were ploughing their money in. However, could politicians now regret not doing more to help first-time buyers?
Investors now rule the roost
In years gone by property markets such as those in the UK were dominated by first-time buyers looking to invest in property and invest in a new home life. They were seen as long-term buyers of UK property, solid supporters, and if anything they would eventually move up the ladder as opposed to taking a profit and sitting on their funds. The situation has changed dramatically in recent times and investors now rule the roost in all of the major property markets around the world.
This abandonment of first-time buyers will certainly come back to bite property markets around the world because once investors decide to sit on the side lines, who else will be supporting prices?
Will first-time buyers ever return in great numbers?
While there are potentially large numbers of first-time buyers around the world the fact remains that wages have not kept pace with property price increases. When we also factor in the various changes in mortgage arrangements, many brought in after the 2008 property crash, the situation is becoming more and more difficult for first-time buyers. Unless we see a sudden increase in wage inflation and a reduction in property prices (or at least stagnation in the short to medium term) then it is difficult to see how first-time buyers will be able to climb onto the property ladder without significant financial assistance from the authorities.
As we have seen in the UK in recent times, this financial assistance required to allow first-time buyers to acquire property does actually feed the ongoing rise in property prices and could actually be counter-productive in the longer term. While it is difficult to see first-time buyers priced out of the market for ever and a day, at this moment in time the major real estate markets of the world are moving far quicker than average household incomes. As the gap between funds available and funds required continues to grow, will we ever see a return to equilibrium for first-time buyers?