Looking at the recent stats from HMRC, many in the market might be surprised to see that the number of residential transactions during March were actually 6.8% up on the same month in 2018. Given everything that has gone on in the marketplace and the fears around how the Brexit uncertainty might be impacting on sales, then it’s a rather positive note to end the first quarter of 2019 on.
Of course, it’s far too soon to be speculating on whether a decent month translates into a decent year, and there’s no doubting that from a mortgage market perspective, the expectation has to be that it will be remortgaging and product transfer activity that continues to be its bedrock, rather than any significant move in the direction of increased purchasing.
That said, first-time buyer activity is said to be inching up month-on-month and this is no doubt contributing to the increase in the purchase numbers. We’ve also heard from a number of lenders recently – most notably the Big Six-er Santander – who are said to be targeting first-timers and there have been a number of incentives thrown into the mix to achieve this, not least free valuations and increased cashback.
One suspects that, given the highly competitive nature of the mortgage market at present, and the fact that not every lender can secure the lower-risk, lower LTV business they crave, there is a concerted move towards new borrower groups with perhaps first-time buyers being seen as ‘less risky’ than some others.
If this all sounds like good news for first-time buyers (and advisers) then it is, but we shouldn’t dismiss some of the largest obstacles that stand in the way of potential new homeowners, the biggest of which still remains securing a large enough deposit to get on the housing ladder.
Just recently, Experian data suggested that the average deposit required by a first-timer had risen to just above £30k – up 12% in 2018 from the previous year. Given that level of saving needed, it’s perhaps not surprising that previous research found that 22% of all those who wanted to buy said the deposit was their biggest challenge.
Indeed, even with an ongoing rise in the supply of 5% deposit mortgages, finding this type of money – especially without the help of the Bank of Mum & Dad (BOMAD) – could be nigh-on impossible for many would-be purchasers. And as Experian pointed out, that means that getting access to 95% LTV loans can still be incredibly difficult, even if lenders are tip-toeing slowly into showing an increased appetite for such activity.
Even with the ability to secure support from BOMAD – which Experian puts at an average of £7,367 per first-timer buyer – borrowers are still looking at an extra £23k if they are going to make that ‘average’ deposit level. With all the financial commitments that younger people have – monthly rental levels, student loans, transport costs, etc, – you can see why the average age of a first-timer is getting older and older, and why many younger individuals feel that homeownership is so far out of reach for them.
But, what does the future look like? Well, an increase in supply of new homes is always going to help, as is stability when it comes to house prices, but unfortunately it looks like first-timers are not truly getting the benefit of either. The number of new homes being built is still nowhere near the levels required, and our recent AmTrust LTV Tracker revealed that the average house price for first-timers had actually risen by close to £10k since the last iteration of the survey just three months ago.
While we’re pleased to see more lenders in the 95% LTV space, this appetite to lend needs to grow further, and lenders perhaps need to look at how they utilise private mortgage insurance to make their mark in this sector, and to bring pricing down to more lower LTV levels. Those borrowers who are able to secure a 95% LTV mortgage, on average, pay close to 50% more than their 75% LTV counterparts, and when it comes to affordability this is obviously going to have a significant impact.
There is a demand to buy but we can’t really say that the market works in first-time buyer’s favour at the moment and, if you don’t have a relative to support you, the options are further limited by the deposit requirements needed. Overall, it looks likely that while we might see first-time buyer numbers inching up, the big push over the top is some way away.
Pad Bamford is business development director at AmTrust Mortgage & Credit