With the stamp duty holiday now over in England and a sense of normality returning, it’s perhaps unsurprising to see much more focus on the continuing plight of first-time buyers in their attempts to get on housing ladder.
First-timers appear to have been a priority, certainly for this current Government, and the fact that they still have no stamp duty to pay on properties valued up to £300k is an indication that they remain a cause for concern and a group that requires help.
However, the point may soon be reached where – if the Government want to continue with this stamp duty incentive for first-timers – they may have to inch the threshold higher.
Recent figures from the Halifax House Price Index for September reveal that the average UK house price is not a million miles away from £300k, sitting at £267,587, and of course in some parts of country, notably Greater London, it is already well above that £300k benchmark.
2021 may appear to be something of an outlier year for the market because the monthly change in house price has been up and down, but unarguably September’s rise was an ‘up’ month. Prices rose by a considerable £4,425 from August, which is a 1.7% increase; were they to continue on this path then you begin to see why people want to get on the housing ladder soon rather than later.
Potential first-timers are effectively fighting against house price inflation here. A recent study by Comparethemarket suggests that house prices will have increased by 30% in 2031, with the average age of a first-time buyer in England moving up to 35 by that time. In Greater London it will be above this, at 37.
The problem is of course that first-timers can’t just stick their hands in their pockets, pull out a 10% deposit and away they go. The biggest obstacles remain saving that money, while most are paying high rents, and of course, until only relatively recently, there was a dearth of high LTV products which might allow them to buy with just a 5% deposit.
Add in the hugely competitive market we have seen over the last 18 months, with first-timers competing against second-steppers/other first-timers and landlords in order to buy similar types of property, and you might understand why the Government has those existing schemes to help them, and why the industry is also delivering new initiatives like Deposit Unlock specifically for them. We are also very proud to be involved in this.
Where the mortgage lending industry can fit in here, and offer its help, is of course supporting such schemes, but also looking at its own high LTV offerings because it is still some way off pre-pandemic levels.
For instance, using the latest Halifax stats, a first-time buyer looking to purchase the Halifax average house price, with just a 5% deposit, would currently be able to access just over 170 95% LTV products. The bulk of those are two/three/five-year fixed-rate deals (149) and within that there are 63 two-year fixes available.
Compare that to what they could access if they had just 5% more deposit and it’s still chalk and cheese. 448 total products, 368 of which are two/three-five-year fixes, of which 165 are of the two-year variety. And it’s not just the numbers but the price differential that will make a significant difference.
At the moment the best two-year 90% LTV fix is 1.79%, while for 95% its 2.67%. That might not seem a lot, but each month that’s £166 more to pay (£996 versus £1,162) and were you to keep that product over the life of the mortgage, the first-timer with a 5% deposit would effectively pay close to £50k more in total mortgage costs.
I’m not going to suggest how lenders credit risk their first-timers but that does seem like a significant jump in costs for individuals and again is one of the reasons why those with smaller deposits can find it so difficult.
Overall, it seems likely that the first-timer will remain well on the radar of many stakeholders as the primary buyer to support in our market, however it’s absolutely necessary that the mortgage lending community also does its bit to support this demographic, perhaps starting with more 95% LTV products which are a little more competitively priced. After all, those at the lower LTVs have a surfeit of products to choose from.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International
