Prospective first-time buyers might look at the current housing market situation and wonder if now is the best time for them to be trying to get on the housing ladder.
There are a number of things which, on the surface, appear not to be in their favour particularly if they have no access to the Bank of Mum & Dad to support them with their mortgage/home-buying goals.
On that specific point, recent analysis from Savills outlines just how head-scratchingly bizarre the current market for first-timers can seem. For instance, according to Savills, it is anticipated that parents will provide their children with £9.8bn in 2021 alone to help them buy a first property.
Which if you break that down into individual gifts and loans is an eye-watering £58,000 for each supported house purchase. For many of those yet to buy – even those who can count on some form of parental support – the notion of ‘asking’ for close to £60k to support that move seems utterly fanciful, but it would appear that some parents have the money and are willing to part with it. However, as mentioned, what about those who can’t rely on this parental largesse?
The other parts of the housing market which might be off-putting are perhaps even more self-evident. House prices have increased in the last year by at least 8% according to most indices; the supply of housing coming to market – both second-hand and new-build – is not what anyone might wish, and it’s not just the case that first-timers are competing amongst themselves for these homes.
The stamp duty holiday was open to everyone who wished to buy, and purchasing activity boomed as a result. 2021 is likely to see 1.4-1.5m property transactions completed, up significantly on the norm for the last few years of 1-1.1m.
And what about the mortgage situation? Well, as we know, lenders have not exactly shown the greatest level of lending appetite towards first-time buyers – unless they happen to have huge deposits – and first-timers have significant affordability and income measures to meet which again puts potential obstacles in the way for those looking for a first property.
Add all that up, and you might well come to the conclusion that the chance of a new buyer coming to market are slim. And yet, that’s not truly the case because, certainly since the end of the stamp duty holiday, while of course some of those fundamentals remain in place (and are difficult to get around) first-timers appear to have more things going for them now than in the recent past.
Take stamp duty. With the holiday over, we are back to a situation where first-timers are the only purchasers having to pay no stamp duty for purchases below £300k – this month’s Halifax house price index suggested the average UK house price was just above £270k.
With purchase activity having swelled during the stamp duty holiday period, it’s now anticipated this will tail off through the next year. Supply is still tight but the competition that existed for first-time buyers might not be in such abundance now.
The mortgage market has regained its senses in terms of high LTV lending. With the significant catalyst provided by the Government’s guarantee scheme we now have a 95% LTV market worth talking about, and just recently, pricing in this part of the market has been cut further, even when the market is anticipating a BBR rise.
Obstacles of course remain. Compared to average incomes, house prices are high and not easily achievable. A 5% deposit on a £270k house still requires in the region of £13k, and if you want to pay even less every month you’ll need to at least double that. If you don’t have a branch of the Bank of Mum & Dad to call into, that might not be so easy to achieve.
However, all things considered, advisers can certainly push some positive first-time buyer messages out into the market at the moment. Of course, it’s not going to be easy to get there, but mortgages are likely to be cheaper for first-timers than they were pre-stamp duty holiday and they still (on the whole) won’t have to pay that tax anyway.
If all things are possible, then now is a good time to make the first move – advisers should ensure they are at the front of the queue to secure those than can make it work.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International