October saw the number of first-time buyer house completions stall, according to the latest First Time Buyer Opinion Barometer from Your Move and Reeds Rains.
There were 26,500 first-time buyer completions in October 2014, 0.8% more than a year ago, and 1.1% fewer compared to 26,800 in September. First-time buyer transactions have now fallen back 12.3% over the last three months, however the rate of slowdown is beginning to ease. A monthly slowdown of 1.1% between September and October compares to falls of 7.3% between August and September and 4.3% between July and August.
The average purchase price for a first-time buyer property rose 4.1% year-on-year to reach £152,684 in October 2014. Over the same period, the average first-time buyer deposit has fallen 6.0% – boosted by a greater variety of options for higher LTV borrowers – and now sits at £26,046, compared to £27,719 a year ago. The size of an average first-time buyer mortgage climbed 6.5% year-on-year in October to £126,638.
David Newnes, director of estate agents Your Move and Reeds Rains, said: “Help to Buy reinvigorated the bottom of the market by adding that vital ingredient – confidence. But other factors have pulled this back over the last few months: confusion over a base rate rise, global uncertainty, falling house prices and an inadequate supply of affordable homes have all contributed to a hesitation among first-timers about whether now is the right time for them to buy.
“Stalling first-time buyer completions is down to dipping demand, rather than mortgages becoming less accessible. Compared to a year ago, there are now more options for first-time buyers unable to save up large deposits to get on the ladder. Cheaper rates have also played a part, by allowing first-time buyers to lock into cheaper monthly repayments.”
There is still a lack of understanding about loan-to-income caps and their potential effects on the mortgage application process. When asked about their understanding of the caps, seven out of ten (67%) first-time buyers said they have never heard of them, while a further sixth (14%) answered that they have heard of them but don’t understand what they are. Just one in five (20%) first-time buyers have heard of loan-to-income caps and understand what they are.
Additionally, a large proportion (42%) of first-time buyers believe loan-to-income caps have made it more difficult to get a mortgage compared to six months ago. A further 48% are unsure of the effects of the caps, and only one in ten (10%) believe the introduction of loan-to-income caps has had no effect on how difficult it is to get a mortgage.
The latest e.surv Mortgage Monitor showed a drop off in higher LTV lending in October. Lending to borrowers with a deposit of 15% or less of the total value of their property constituted just 14.9% of all house purchase borrowers in October, the lowest percentage in six months. Their share of the market had been stable from June to September, fluctuating very slightly between 17.4% and 17.8%.
Newnes said: “Loan-to-income caps are the latest wave of regulation to hit the mortgage market, following the tide-change brought in by the Mortgage Market Review earlier this year. Although they have were intended as a preventative measure to restrict lending to those on tighter incomes, they do have in-built flexibility – and even the Bank of England expected their initial impact to be limited.
“However, our research shows that loan-to-income caps are still widely misunderstood, and four in ten first-timers believe they have made it more difficult to get a mortgage compared to six months ago. The regulation may have been brought in as a safeguard for the future, but it has had an immediate effect in dampening demand, and needs to be explained better.”
Despite the recent fall in first-time buyer demand, more people believe they will be able to buy at some point in the future.
A fifth (20%) of tenants expect to be able to buy by the end of 2014/2015, compared to just 6% in December 2013. A further two fifths (40%) believe they will be able to buy within the next five years. Under one in three tenants (28%) believe they will buy at some point in the future, but cannot pinpoint when. Only 9% of tenants surveyed in October think they will never be able to afford to buy, three percentage points lower compared to December 2013 (12%).
In October 2014, 93% of tenants registered with Your Move and Reeds Rains wanted to become homeowners.
Four in ten first-time buyers (41%) surveyed in October had only recently been in a position to be able to buy. Other popular reasons for getting onto the housing ladder were the desire to settle down (24%) and the desire to own a home with their partner (28%). Just 6% of first-timers chose to buy as an investment for the future – compared to 11% in December 2013 – reflecting the slowdown in house price growth over the last year.
Over half of first-time buyers (54%) are receiving some kind of financial help with their purchase. A third (36%) received support from their relatives to put together a deposit; 11% used money from an inheritance and 5% made use of government schemes like Help to Buy. However, the proportion of first-time buyers self-financing their purchase (46%) has risen slightly compared to December 2013 (44%).
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Newnes said: “Even though slightly more first-timers are self-financing than a year ago, over half of purchases are still reliant on outside financial help – by and large mostly with putting together a deposit. This is putting pressure on parents and relatives of first-timers, many of whom have seen their own savings eroded since the recession, with inflation consistently tracking above the base rate. Until more first-timers are able to self-finance, it is important to keep the support mechanism of Help to Buy in place to provide a financial leg-up to those buyers who can’t rely on family and friends.”
In London and the South East, the average first-time buyer was 31 years old and earning £44,800 in October, whereas in the rest of the UK, the average first-time buyer was 30 years old and earning £33,000.
First-time buyers in the capital paid an average of £270,881 for their property in the three months to October 2014, compared to £145,992 across the UK. The average first-time buyer deposit in London was £73,913, compared to an average of £26,711 across the UK.
Newnes added: “The affordable housing conundrum is even more of problem in London, where the lack of affordable housing stock is artificially inflating first-time buyer purchase prices. As a result, London first-time buyers have to wait longer to get on the housing ladder. Mansion tax is high up on the agenda for London – but it is important that the other end of the buyer spectrum doesn’t get forgotten. First-time buyers have propped up activity over the last year, and they require continued support, otherwise a large driver of activity in the capital could fall away.”
