There has been an annual 6.6% rise in the number of households purchasing their first home, according to the latest First-Time Buyer Tracker from Your Move & Reeds Rains.
The total monthly volume of first-time buyer transactions stands at 21,100, as of February, up from February 2015’s figure of 19,800.
The month also saw a slight seasonal dip, with the number of completed first-time buyer property transactions falling by 300 – or 1.4% – between January and February.
However, on a seasonally-adjusted basis, February’s figure is considerably higher at 25,900, just 500 below January 2016’s seasonally adjusted total of 26,400, and represents 100 more first time buyers than the seasonally adjusted average (25,800) for the period between January and December 2015.
Adrian Gill, director of estate agents Your Move and Reeds Rains, said: “February is a traditionally quiet period for the first-time buyer market. The month sits awkwardly between the New Year property market rush and the spring-summer activity high. However, beyond that seasonality, these figures demonstrate the strong, steady underlying growth that comes with growing first-time buyer confidence.
“This optimism may begin to reveal itself more clearly in March, when an Easter uplift may sweep away any residual doubts among some first-timers. While the more general mismatch between buyers and sellers will continue to exert upwards pressure on prices, a combination of pluck and poise from first-time buyers will ensure that this does little to impact the overall trend of growing demand at this end of the market.”
The costs of buying and owning a first home have remained broadly stable in February, with lower borrowing costs balancing larger prices and deposits.
Average mortgage rates for first-time buyers have improved, down 0.56 percentage points on a 12-month basis and by a much slighter 0.03 percentage points between January and February 2016. February’s average mortgage rate also represents the lowest mortgage rate for first-time buyers in over five years.
Similarly, the average LTV ratio remains high, meaning first-time buyers have been able to borrow more against the value of the home they wish to purchase. February’s average loan to value ratio reached 82.5% in February – a figure that is high relative to most of the average LTVs recorded in 2014/15 and represents only a 0.1 percentage point fall on February 2015. That high LTV lending remains strong is supported by evidence from e.surv’s Mortgage Monitor, which recorded a 5.7% month-on-month increase in the number of higher LTV loans in February.
In addition, while first-time buyer property prices have risen significantly on an annual basis, mortgage lending levels have kept pace. In February, the average purchase price for a first-time buyer home stood at £168,539, an increase of £21,320 – or 14.5% – on February 2015’s average of £147,219. However, over the same 12-month period, the average size of a first-time mortgage grew from £121,534 to £139,088 – an increase of 14.4%.
Larger deposit costs represent the other side to this balance of affordability. In February the average deposit put down by a first-time buyer stood at £29,451 – an increase of 14.7%, or £3,766, on an annual basis. This uptick has been a factor in the growing proportion of first-time buyer income which is consumed by deposit costs. In November 2015, a deposit ate up just over two-thirds (67.4%) of an average first-time buyer’s annual income, whereas in February of this year the average deposit consumed, on average, almost three-quarters (74.9%) of their income.
However, the amount of first-time buyer income that is consumed by monthly mortgage repayments has hardly changed between February 2015 and February 2016. Over the last 12 months this has risen 0.8 percentage points, from consuming 19.6% of an average first-time buyer’s income to consuming just over a fifth (20.4%) of such income.
Gill said: “First-time buyers have had the benefit of some favourable February conditions. While those setting a first foot on the ladder this month have had to shell out more in terms of headline prices – as they seek to compete with buy-to-let investors for small, affordable homes – mortgage lending has easily kept pace. Equally, although many first-time buyers will baulk at the rising deposit costs, there is a silver cloud to this grey lining. Larger deposits tend to indicate growing incomes and larger mortgages, meaning an impressive number of first-time buyers are accessing the capital to purchase a first home, even in a sellers’ market.
“In addition, the fundamentals are still there for aspiring homeowners to realise their dreams. The average mortgage rate remains competitive and the lending market is still very supportive towards those taking their first step into the property market. The coming months will test whether first-time buyers feel ready to seize that support as vigorously as they did last year.”
The capital remains the most expensive spot for first-time buyers. The average value of a first-time buyer property in the London hit £314,626 in the three months to February 2016. The South East is the second-most expensive region, with average first-time buyer house prices there standing at £211,638 over the same period.
Conversely, the North East and Northern Ireland rank as the least expensive regions for first-time buyer properties. Average first-time buyer property values stand at £114,163 in the North East and £99,294 in Northern Ireland. Nationally, the average price for a first home stood at £156,783 in the three months to February 2016.
On average, Londoners put down by far the largest deposit of any region in the three months to February 2016, shelling out £73,160 – more than five times the size of the average first-time buyer deposit in Northern Ireland (£14,503). The second-largest deposits are paid by South Eastern first-time buyers, who paid an average of £39,467 to secure their first home in the three months to February 2016. Nationwide, the average first-time buyer paid out £26,077 in deposit costs.
Gill said: “As values in the capital reach almost double those of the rest of the UK, there appears to be no let-up in the dominance of the London property market. However, high deposit costs in the south east and west of the UK indicate the growing desirability of those regions. Many families, young professionals and investors are bidding farewell to the high cost of London living and instead are seeking out affordable localities elsewhere. Bath, and Cambridge are becoming popular southern alternatives to London, offering a good mix of culture, value and accessibility to the capital.”