The first half of 2014 saw 30,000 more first-time buyers get on the housing ladder than in H1 2013, according to the latest First Time Buyer Opinion Barometer from Your Move and Reeds Rains, part of LSL Property Services.
There were 146,600 first-time buyer transactions between January and June this year, up 27% from 115,700 in the same period last year. It was the strongest opening six months in seven years. The last time the opening half of a year saw more first-time buyer sales was in 2007 (181,500 transactions), before the financial crisis began to bite.
On a monthly basis, there were 26,500 first-time buyer sales in June, 10% more than 12 months ago. It was the second consecutive month in which the number of transactions topped 26,000.
The average first-time buyer deposit was £24,530 in June, falling 18% from £29,845 over the last 12 months. First-time buyer deposits have averaged less than £25,000 for five consecutive months.
At the same time, first-time buyer purchase prices have stayed fairly stable. The average first-time buyer mortgage has risen 2.9% over the last year to £119,743, while prices have stayed flat but deposits have fallen. The market is indicating signs at first-time buyer level of remaining stable and prices not spiralling out of control.
David Brown, commercial director of LSL Property Services, said: “The bottom of the market continues to recover, even as activity further up the price bands is beginning to show signs of slowing down. Lenders have been more willing to lend to higher loan-to-value borrowers. Help to Buy has boosted confidence and with it demand among first-timers who have been carefully saving up for their deposit.
“But the new loan-to-income caps could have a stifling effect on the first-time buyer market. They have understandably been designed to prevent too much ‘risky’ lending to borrowers with smaller deposits, but they need careful interpretation to ensure they do not cut good buyers – with realistic and very affordable borrowing expectations – out of the market. MMR regulations already stress test borrowers’ ability to withstand a base rate rise. The further regulation could sap the energy at the bottom of the market.”
In June 2014, 93% of tenants registered with Your Move and Reeds Rains wanted to become homeowners.
The proportion of registered tenants expecting to buy in the near future is increasing. In June 2013, only 12% of tenants expected to buy in the next twelve months. A year later, that proportion has risen to 17%.
A further 38% of tenants surveyed in June 2014 believe they will be able to buy within the next five years. Another third (29%) expect to buy at some point in the future.
But the number of tenants who believe they will never be able to afford to buy is also increasing. One in seven tenants (14%) were never expecting to be able to afford to buy in June 2014, up from 9% a year ago.
Financial support from family members remains a key factor supporting first-time buyers. Four in ten (39%) first-timers received family help in building a deposit in June 2014, (slightly higher than 36% a year ago). A further 7% used money from an inheritance to help them get on the ladder, while 4% made use of a government scheme like Help to Buy to help them fund their purchase.
45% of first-timers completely self-financed their purchase in June 2014.
35% of first-time buyers surveyed in June 2014 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 (30%) 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.
Brown said: “The Bank of Mum and Dad is still a very important helping hand onto the housing ladder for first time buyers. It will remain important if interest rates begin to rise and repayments get more expensive. Borrowers will look to increase the size of their deposit – with the backing of their parents – in order to access cheaper rates initially and reduce their monthly repayments. However, it’s still crucial that the Government continues to support those aspiring homeowners who don’t necessarily have the financial support from parents or other family members for their deposit.”
The profile of a first-time buyer in London differs from a typical first-timer outside of the capital. The average London first-time buyer was 31 and earning £41,513 in June, but in the rest of the UK, the average first-time buyer was 29 and earning £32,748.
The average first-time buyer in London paid £258,854 for their property in Q2 2014, compared to £146,512 across the UK. London first-time buyers typically paid more than double the rest of the UK in terms of their deposit. The average first-time buyer deposit was £62,050 in Q2 2014, over twice the average deposit in the South East (£29,932) and four times larger than the average first-time buyer deposit in Northern Ireland (£16,226).
Brown said: “The London market has been helped by demand from foreign investors and buy-to-let landlords, which has pushed the average purchase price for first-time buyers up artificially high. Capping loan-to-income ratios will have a limited effect in the capital as a result. First-timers in London are already waiting longer to get onto the ladder, giving them time to save up extra pay checks towards a deposit. Introducing loan-to-income caps won’t significantly dent demand for property in London – but it will make it even more difficult for London first-timers to get onto the property ladder.”
