Married with children: meet the new first-time buyers

Rising costs mean many couples are having kids before they can afford to get on the property ladder

Katie Marshall was 26 when she bought her first home, a one-bedroom flat in Wimbledon, southwest London, for £220,000. It was 2006 and she and her boyfriend Tom, now her husband, put down a 10 per cent deposit on the 500 sq ft property where they lived for three years.

Nearly two decades later, Danielle McMullen, 38, and her husband, Neil, 55, who live with their 13-year-old son in Cardiff, are hoping to finally get on the property ladder and buy a three-bedroom house. The average sold price in their area in the last year was £438,865, according to Zoopla.

They are not atypical of first-time buyers today, since the rising cost of properties and mortgages means that aspiring buyers have to save for longer. Many are now more likely to have a family by the time they can buy, something that, in itself, makes it harder to save. Marshall knows how lucky they were.

Today, she said, getting on the property ladder in the same area with £22,000 would be impossible. “It was perfect and had everything we needed. So much has changed since then, I don’t know what we could buy with that these days. We used our savings and my dad gave us a small sum too, but we would never have been able to save that if half of our salary went on rent like it does for first-time buyers today.”

The Marshalls, both now 43, were also able to get a foot on the ladder because they were searching for a one-bedroom property — an option that is increasing limited for anyone looking for their first home. The share of first-time buyers with at least one dependent increased from 10 per cent in 2009 to 20 per cent in 2023, according to the mortgage lender Santander.

It comes as buyers make their first purchase later in life and are more likely to have started a family with children. Graham Sellar from Santander said: “With the average age of first-time buyers increasing in the past decade, more are reaching other life milestones, such as having children first.

“This fundamentally changes the land- scape for first-time buyers who have a family, as they try to juggle the increasing prices of a larger property in an area with access to good local schools, against additional costs, such as childcare fees, which will impact the amount they can borrow.”

When Katie was pregnant with their first child, she and Tom bought a bigger one-bedroom property that they converted into two bedrooms. In 2011 they upgraded to a house, where they still live with their daughter, 14, and son, 11, in southwest London. “I worry for my children and how they will possibly get on the ladder. It was so much easier for us,” said Katie, who owns the PR company Luxley Communications.

BYE BYE TWENTYSOMETHING HOMEOWNERS

Almost one in five first-time buyers are 40 or over, according to Santander. It completed almost 6,000 agreements in principle — the first step to getting a mortgage — for borrowers over 40 in 2024. The oldest first-time buyer to borrow from the bank this year was 67.

This follows decades of house price growth that has outpaced wages, buoyed by low interest rates in the wake of the financial crisis. In 2004 the age at which the majority of people owned their own home was 32.

By 2022, the latest year for which official data is available, it had risen to 36. The number of first-time buyers fell 22.4 per cent to 287,430 last year, the lowest since 2013, according to the trade body UK Finance.

Mark Harris from the mortgage broker SPF Private Clients said: “Many first-time buyers have children because not every life decision can be put on hold. Starting a family is one of those things that people don’t want to, or perhaps can’t, put off.

“It also exacerbates the issue of affordability because buyers will then need a bigger home that will accommodate a growing family, rather than a starter one or two-bedroom flat. Such family homes are also more rare and carry a price premium.”

HELLO HIGH HOUSE PRICES

Over the past 20 years the average price of a terraced house has jumped 104 per cent, outpacing all other property types. The typical price of a flat has increased 76 per cent in that time, while semi-detached homes are up 98 per cent and detached properties 94 per cent, according to the estate agency Hamptons.

“With the cost of childcare factored into affordability calculations, this can make getting a big enough mortgage to purchase a larger property harder than ever,” Harris said. The average price of a property bought by a first-time buyer has risen 50 per cent in less than ten years, according to the mortgage platform Twenty7tec.

In June 2015 a typical first-time buyer borrowed £150,923 to buy an average first home worth £193,728. Last month the average loan for a first-time buyer was £221,792 and the average first property price was £289,207.

Harris said: “Getting on the housing ladder is virtually impossible unless buyers have some assistance from parents or other family due to the big gap between income and property prices.

“The majority of first-time buyers we see have some help in the form of cash deposit, a parent acting as a guarantor or buying together via a joint borrower sole proprietor mortgage.”

The McMullens run an outdoor experience company called Blue Ocean Activities and Events in Cardiff, where they have been trying to buy a three-bedroom property since 2019. Between them they have been saving for almost 20 years but when the pandemic hit house price growth went into overdrive and made buying impossible.

“All of the properties we’ve seen in our price range are much smaller than the two-bedroom flat we currently rent and we feel like it’s pointless investing all that money and paying off a mortgage for 30 years for a property that is smaller than where we live now. “Wages and house prices are not in proportion at all. House prices in our area were half the price 20 years ago than they are now, but I am still earning the same as I was back then,” McMullen said. 

Source: The Times

Real property valuations to change

At present, determining the value of real properties is required for various transactions. Local and national government agencies use different real property valuation standards when assessing these transactions. Hence, the absence of a uniform set of standards for real properties in the Philippines has led to the existence of multiple, overlapping and outdated valuations.

In view of the situation, President Ferdinand Marcos Jr. signed into law Republic Act (RA) 12001, or the Real Property Valuation and Assessment Reform Act (RPVARA), on June 13, 2024, which takes effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation. The law aims to encourage tax compliance and the sustainable development and maintenance of a just, equitable and uniform real property valuation aligned with international standards.

The Bureau of Local Government Finance (BLGF) of the Department of Finance (DoF) will be the primary implementing agency to develop, maintain and apply uniform valuation standards, which should be used by all appraisers and assessors in local government units (LGUs) and different agencies.

What can we expect when the RPVARA takes effect?

At this point, the Bureau of Internal Revenue (BIR) uses zonal valuation for various national real properties transactions like capital gains tax, donor's tax, documentary stamp tax and estate tax. LGUs likewise prepare and implement their own schedules of market value (SMVs) that govern real property tax, also known as assessed value. As a result, the same real property may have different valuations. In most cases, the zonal value of the BIR is often higher than the assessed values of provincial or city assessors.

The valuations used by both the BIR and LGUs for taxation purposes are likewise outdated. In 2021, the BLGF reported that nearly 40 percent of the SMVs from Revenue District Offices and 60 percent of those from LGUs had not been revised. This is despite Section 219 of RA 7160, or the Local Government Code of 1991, which requires LGUs to revise their SMVs every three years.

In the same vein, zonal value is also subject to automatic adjustment every three years pursuant to Section (6)(E) of the National Internal Revenue Code of 1997, as amended. The current situation does not provide consistency and fairness in the valuation of real properties, which could be under or overstated.

With the enactment of the RPVARA, it is hoped that these property valuation issues will be resolved as it adopts a single valuation for real properties that is based on international standards.

Essentially, the reform is intended to remove the political aspects that affect local and national taxation and instead rely on technical and international standards of valuation. To standardize property valuation, the approved SMV will be used as the basis for the determination of real property valuation for both national and local governments.

Assessors in LGUs will prepare the SMV for the different classes of real property situated within their areas. This will be approved by the DoF. In order to ensure that the LGUs use technical and international valuation standards, the RPVARA utilizes the Philippine Valuation Standards (PVS), which is based on the International Valuation Standard (IVS) — a principle-based standard that promotes transparency and consistency in valuation practice.

Under the RPVARA, internal revenue taxes such as capital gains tax, donor's tax, documentary stamp tax and estate tax that use the higher zonal value or assessed value to determine the tax base will now use the SMV approved by the DoF.

The new law is expected to have a positive impact on property owners and the government. Using a single system of property valuation, property owners — both individuals and real estate companies — can expect transparency and accuracy in the valuation of their properties. Property owners will now be aware of the actual value of their properties so they can set transaction prices appropriately. At the same time, the RPVARA may result in an increase in revenues from local and national taxes, which, if used properly, will help improve government services and develop more social projects.

In the meantime, during the transition period under the new law, an amnesty on unpaid real property taxes (RPT) and special levies on real property is granted. The amnesty applies to interest, penalties and surcharges from all unpaid real property taxes, including Special Education Fund, idle land tax, and other special levy taxes.

This may be availed of within a period of two years after the effectivity of the RPVARA. The amnesty may be availed of by a delinquent property owner with the option to settle their delinquent RPT through one-time payment or installments. However, the RPVARA amnesty program does not cover delinquent real properties that have been disposed of through a public auction, those with tax delinquencies being paid through a compromise agreement and those involved in a pending court case connected to tax delinquencies.

Moreover, under the RPVARA, a Real Property Information System will be developed and maintained by the BLGF. This is an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declarations in the country.

Following the signing of the law, the DoF is expected to issue the rules and regulations within three months after the effectivity of the RPVARA for further clarifications and guidelines.

In conclusion, the new law is anticipated to improve the valuation system for real property, which may prove beneficial to both property owners and government agencies as they implement a standardized real property valuation system and boost government revenue.

Source: Manila Times

America’s Frozen Housing Market Is Warping the Economy

Cheap mortgages are forcing millions of U.S. homeowners to stay put. That is becoming a problem well beyond the property market.

If you locked in a dirt-cheap mortgage when interest rates were low, congratulations for being one of the winners in America’s skewed housing market. Renters, realtors and recruiters are among those getting the raw end of the deal.

High interest rates have had an unexpected impact on U.S. housing. Instead of triggering a fall in home prices, as happened with commercial real estate, costlier mortgages have pushed residential values higher. The value of the median existing home rose to a record $419,300 in May, according to the National Association of Realtors. Before the pandemic, it was $270,000.

Blame the “lock-in” effect of ultracheap mortgages secured when interest rates were low, which are trapping owners in their homes. It is an unforeseen consequence of years of easy money. Two-thirds of outstanding U.S. mortgages have a rate below 4%, according to Morgan Stanley’s housing strategist Jim Egan. Were these homeowners to move, they would have to pay close to 7% for a new 30-year mortgage. The gap hasn’t been as wide since at least the late 1980s.

Compounding the lock-in effect, most people have fixed-rate mortgages today. More than 90% of newly issued home loans in recent years were 30-year fixed-rate loans, compared with two-thirds in the run-up to the 2008 housing crash.

As more owners stay put, the number of homes on the market has fallen. Tight supply is pushing prices higher, shrinking the pool of buyers who can afford a home. A household earning $100,000 a year can only afford 37% of home listings today, according to the NAR. In a balanced market where there is around five months’ supply of inventory available the number should be 62%.

The frozen housing market has economic consequences. Spending linked to home sales has dropped. People normally splurge to fix up houses before putting them on the market or to renovate them after they move in. Work has dried up for professionals handling the logistics of transactions, such as attorneys and real-estate brokers. Together with the construction of new homes, these activities normally account for 3% to 5% of U.S. output, the National Association of Home Builders estimates.

The flip side is that millions of households that are locked into cheap mortgage rates can afford to spend elsewhere. They are feeling flush thanks to the $119,000 of additional equity the average U.S. mortgage holder has accumulated over the past four years. This may be one reason why consumer spending has been so resilient in the face of higher interest rates, making it harder for the Fed to bring inflation back to its 2% target.

A less obvious loser is the U.S. labor market. Workers are reluctant to accept job offers in another state if it means sacrificing low housing costs, so labor mobility has taken a hit. One study by economists at the University of California Irvine and UC Berkeley estimates that the lock-in effect discouraged 660,000 moves to a new zip code over the year through June 2023.

Craig Picken, co-founder of Northstar Group, a search and recruiting firm of top talent in the aerospace sector, said that it had become difficult to match companies with the right executives because relocations have financial costs that neither employees nor employers want to shoulder. He gave the example of a vice president of engineering trapped in a “toxic and bureaucratic” workplace with a long commute who nonetheless turned down a new role because he had an existing 3% mortgage.

“His decision came down to an Excel spreadsheet…The salary increase he’d get with the new job was eaten by higher mortgage costs,” says Picken.

Another impact of the lock-in effect is that America’s new homes are shrinking. Houses constructed in 2023 were 5% smaller than those built two years earlier. Builders are trying to keep new homes as affordable as possible for first-time buyers, but the trade-off is less space.

Some housebuilders are winners from the supply crunch, specifically large builders like D.R. Horton that have lending arms. They can use excess profit from high home prices to subsidize buyers’ borrowing costs through mortgage buydowns. They are also less reliant on bank loans to finance construction than smaller rivals. This is one reason why the market share of publicly traded home builders jumped to 51% last year, up from 41% in 2021, according to data provider Zonda.

In theory, if people can’t afford to buy their own homes, landlords should be able to charge more. Rents for individual family homes rose 3% in April compared with a year earlier, according to CoreLogic data. But rents on apartments are barely rising because there is a glut of new supply, offering some relief for tenants for now.

How long could complications caused by the lock-in effect last? Thomas Ryan, economist at Capital Economics, thinks mortgage rates would need to fall closer to 5% for supply to start to normalize. Most projections are for the 30-year rate to be around 6% by the end of 2025. Even at this level, two-thirds of existing homeowners would still have a mortgage in place that was at least 2 percentage points cheaper.

Some homeowners may decide that they can’t delay big life decisions. Divorces and growing families will always force some people to sell up. But this will only boost supply on the margin. The strangest housing market in decades won’t improve soon.

Source: Wall Street Journal