The latest First Time Buyer Tracker from Your Move and Reeds Rains has revealed that the number of first-time buyer house completions in the UK increased year-on-year in September, resisting trends of a slowdown in the market.
There were 25,800 first-time buyer completions in September 2014, 11% more than 23,200 a year ago. New buyers are also paying more for their first home. The average first-time buyer purchase price rose 3% over the same period to £150,950, the fourth consecutive month in which average purchase prices have topped £150,000.
Despite purchase prices rising, the average first-time buyer deposit fell 8% year-on-year from £28,498 twelve months ago to £26,134 in September 2014 – as Help to Buy made higher LTV lending more accessible for borrowers.
At the same time, deposits fell even faster as a proportion of annual income. The average first-time buyer deposit represented 67.6% of annual income in September, 12 percentage points lower than in September 2013.
David Newnes, director of estate agents Your Move and Reeds Rains, said: “Help to Buy has helped keep the blood pumping in the first-time buyer market over the last year, allowing borrowers struggling to save for a deposit the financial life support they need to purchase property.
“At the same time, MMR regulations have performed a health check on their finances, ensuring they will be able to withstand a future base rate rise. Lenders have increased the range of higher LTV options available to borrowers, allowing the average first-time buyer deposit to fall even as purchase prices increase.
“But the sands are shifting in the first-time buyer market. Loan-to-income caps announced in June have added further restrictions for lenders to factor in, on top of the tranche of regulations implemented in April. The effect is that lending is tied to wages much more tightly than in the past. Borrowers increasingly have to prove their financial resilience to access the higher LTV deals available. There is more lending, but at the same time it is more responsible and sustainable.”
On a monthly basis, first-time buyer transactions fell back 11%, though this was due to a seasonal fall between summer and autumn. In fact, the fall was less than last year: transactions fell 12% between August and September 2013.
Despite a slowdown in lending over the summer, the latest e.surv Mortgage Monitor revealed that house purchase approvals grew slightly in September, after three months of decline over the summer, hinting that the pause in the lending recovery is coming to a close. However, total approvals were still 2% lower than a year ago in September.
At the same time, lending to higher LTV borrowers remains strong, despite falling total approvals. There were 11,588 house purchase approvals to borrowers with a deposit worth 15% or less of the total value of their property in September, 1% more than in August 2014 and 45% more than September 2013. It was the second highest monthly number of higher LTV approvals since June 2008, with June 2014 the only month to outstrip September.
Newnes said: “The first-time buyer market has proved largely resilient to the wider cooling in the housing market over the last few months. While property price rises have begun to slow and total lending levels have also dipped, first-time buyer demand has kept a steady pace. There was a slight drop-off in activity in September, but this had less of an impact than the similar drop-off we saw last year.
“First-time buyers continue to be a key component of the engine powering the housing market recovery. Many worthy borrowers are only just seeing their finances recover after the financial crisis, and are now in a position to buy.”
In London, the average purchase price for first-time buyers was £276,168 in Q3, £170,000 more than the average purchase price in Northern Ireland (£106,993) and £130,000 more than the UK average (£143,721).
First-time buyers in the capital also have the largest deposits on average – £75,774 in Q3 compared to the UK average of £26,078.
Newnes added: “The heat is beginning to come off at the very top of the market in London as some foreign investors may be put off by strong sterling. But this hasn’t mellowed demand for lower end properties in the capital. On the contrary, first-time buyer demand continues well. Increasing affordable housing stock in London over the next year is going to be essential if we are to prevent the housing shortage from turning into a bigger problem. Potential policies to help solve the problem will be closely watched in run-up to next year’s election.
“There may also be a lesson to be learnt from Scotland, where a mansion tax has been proposed to raise funds to cut duty on affordable homes. While a mansion tax would have a big impact on the London market, revisiting the stamp duty slab structure is something that would actually help first-time buyers at the lower end, by removing some of the additional costs associated with buying properties. Even the cheapest homes in the capital are now mostly liable for stamp duty, which is adding an unnecessary extra burden to those trying to buy. Updating the thresholds would help to alleviate this.”
