First-time buyer activity has reached a two-year high, according to the latest First-Time Buyer Tracker from Your Move & Reeds Rains.
April saw 32,300 completed first-time buyer transactions, an improvement of 14.9% compared to 28,100 in March and 50.9% stronger than the 21,400 seen in January 2016.
The significant sales surge means that April has seen the highest monthly number of completed first time buyer transactions in almost two years, with sales surpassing totals from the last 22 months, since the 33,300 total reached in June 2014.
Compared to a year ago, completed first-time buyer sales have grown 37.4%. April 2015 saw just 23,500 first-time buyer completions, meaning 8,800 more first-time buyers got on the housing ladder this year than last.
Adrian Gill, director of estate agents Your Move and Reeds Rains, said: “This surge in sales shows that demand is steadfast among first-time buyers – despite upward movement in house prices. In the short-term, first-timers may be finding that competition for properties has eased slightly following a period of intense pressure on landlords to meet the stamp duty surcharge deadline at the beginning of April. With a chronic shortage of homes, one man’s loss is another man’s gain. Subdued landlord demand following the changes is offering some temporary light relief to first-time buyers. Less competition from landlords expanding their portfolios means more houses to buy for first-timers.
“Scratch beneath the surface of these positive monthly figures and a darker long-term picture emerges. The Government’s restrictions on the buy-to-let sector may seem to play into the hands of today’s first-time buyers, but future first-timers could pay the price. Demand for first-time properties to buy remains red hot, but demand for cheap properties to rent is also searing – fuelled by a swelling population and increasing desire among many to move around the country following career opportunities. Cutting landlords out of the equation will simply drive this demand harder still, pushing up rents, and making saving for a deposit for a first-home more difficult. First-time buyers are tenants too.”
In the last 12 months, the average price paid by a first-time buyer to purchase their first home has risen more than £20,000.
April saw first-time buyers spend an average of £168,656 on their purchase, 13.6% higher than the £148,483 they spent in April 2015 – a difference of £20,175. With the average first-time buyer income sitting at £40,549, this sum is the equivalent of an extra half-a-year’s salary in terms of total consideration.
As a result, rising house prices have also pushed the average first-time buyer deposit up significantly over the last 12 months. Currently, the average first-time buyer pays £27,290 as a deposit, 13.8% (or £3,300) more than the £23,990 paid on average last April. When compared to average income this represents an extra month’s salary (29 days). As a proportion of income, the average deposit has climbed 4.6 percentage points compared to a year ago.
However, in a sign of continued competition in the lending market and strong financial support for first-time buyers, the average mortgage rate has fallen 0.45 percentage points over the last year and now stands at just 3.10%. This represents the lowest average mortgage rate for first-time buyers on record.
The latest Mortgage Monitor from e.surv provides further evidence of this trend, showing that small-deposit lending accounted for 19.1% of house purchase approvals in April 2016, compared to 16.3% a year ago.
Thanks largely to these cheaper rates, including in higher-LTV brackets to borrowers with smaller deposits, mortgage repayments have not increased significantly over the last year as a proportion of income. Monthly repayments currently represent 20.1% of a first-time buyer’s income – and this is just 0.4 percentage points higher than the proportion recorded a year ago.
Gill said: “House price growth continues to be the thorn in the side for many first-time buyers. Even as lenders compete to attract first-time buyer business by lowering rates to record lows, mortgage repayments and deposits are getting more expensive due to house prices lifting at the lower end of the market. This is a supply issue. Any efforts to increase housebuilding and stimulate supply will take time. There is no magic wand solution to the first-time buyer housing crunch.
“Wider economic woes may also be playing a part. Recently, to some extent, improved wages have helped alleviate the pain of rising house prices. But with growth slipping and the uncertainty around the EU referendum slowing down the economy, higher wages are no longer the salve they were. Thankfully, lower rates and improved availability of financial support to first-timers mean mortgage repayments remain affordable against all the odds.”