FTB deposits drop 10% in a year

First-time buyer deposits have fallen by £2,745 in the last twelve months, according to the latest First Time Buyer Tracker from Your Move and Reeds Rains, part of LSL Property Services.

Related topics:  Mortgages
Amy Loddington
27th June 2014
Mortgages

Data from estate agency chains Your Move and Reeds Rains shows the average first-time buyer deposit fell 10% year-on-year from £27,382 twelve months ago to £24,637 in May 2014. It was the fourth consecutive month in which the average first-time buyer deposit was below £25,000. 

One side-effect of falling deposits is that they are becoming cheaper as a proportion of wages. The average first-time buyer deposit represented 67% of a first-time buyer’s annual income in May, compared to 77% twelve months ago. But the average deposit is still equal to 8 months of the average first-time buyer salary (£37,000).

More lending to high LTV borrowers, supported by the Help to Buy scheme, has allowed the number of first-time buyers to grow over the last year. There were 23,400 first-time buyer sales in May 2014 – 3.5% higher than twelve months before.

The yearly improvement in first-time buyers came even as purchase prices increased. The average first-time buyer purchase price increased 7% year-on-year in May to £146,887, over £9,000 more than in May 2013, when the average purchase price stood at £137,561.

David Brown, commercial director of LSL Property Services, said:

“Help to Buy has helped support the first-time buyer market over the past year. It has encouraged banks to extend more loans to lower equity borrowers, relieving some of the burden of saving for a larger deposit often out of their reach. Average first-time buyer deposits have got cheaper by nearly £3,000 as a result.

“Savings rates have been stuck at rock bottom for over five years, wages are only just beginning to show signs of growth, and the cost of living has been mounting all the while. Without Help to Buy, these stumbling blocks may have been too large for some prospective home-owners to overcome.

“It is imperative to let the scheme run its course. The property market is already weighted in favour of home-owners, who have benefitted from bricks and mortar price-growth. Punishing first-time buyers by pre-maturely cutting back Help to Buy would do more damage than good. To keep price-rises in check we need to upscale housing development and build more new homes offering wider choice and supply to buyers which will dampen any danger of high price rises.”

On a monthly basis, first-time buyer sales fell back 4.5% as lending volume slowed in the wake of the introduction of the stricter regulations.

The average LTV of a first-time buyer was 83.2% in May 2014, down 0.4 percentage points from 83.6% in April. Borrowers stretching their finances to buy their first-home, (often the borrowers with less of a deposit), are feeling the impact of the MMR regulations the most.

First-time buyer mortgage rates are also beginning to creep back up. The average first-time buyer mortgage rate was 4.09% in May 2014 compared to 4.05% in April and 3.99% in March. Lenders are starting to raise rates in the wake of growing economic confidence, and to slow the current rush for fixed-rate mortgages that has been stimulated by the recent discussions on an early base-rate rise.

The latest e.surv Mortgage Monitor showed house purchase approvals fell for the fourth consecutive month in May. But demand among first-time buyers remained strong. There were 9,670 loans to borrowers with a deposit worth 15% or less of the total value of their property in May 2014, 3% more than in April (9,375) and 40% higher than a year before (6,912).

David Brown, commercial director of LSL Property Services, said:

“There is a slowdown in lending as MMR is bedding down and banks and mortgage advisers get used to the new regulations. That is most likely a temporary blip but there may be some more permanent side-effects. The new rules demand more extensive affordability testing of first-time buyers, including stress testing against a potential base rate rise. Some of the bottom tier of first-time buyers may find they are no longer eligible to borrow. If Governor Carney chooses to exercise his new powers over to loan-to-income ratios, first-time buyers could be even more significantly affected. MMR encourages the individual investigation of each application but loan-to-income caps are far more simplistic, and could lead to a number of worthy first-time buyers missing out on a mortgage.”

There were four regions of the UK with higher than average first-time buyer property prices in the three months to May: London, the South East, the East of England and the South West.
In London, the average first-time buyer purchase price was £267,572 in the three months to May, over three times more than in Northern Ireland (£83,899).

London first-timers also paid the largest deposits, at £65,989 – typically 25% of the value of the property they were purchasing. It was more than double the size of the average deposit in the South East (£30,484), where deposits were typically 16% of the value of the property.

The North East was the cheapest region in terms of first-time buyer deposits, with an average first-time buyer deposit of £12,274 in the three months to May.

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