There were 26,100 first-time buyer sales in July, 8,100 more than twelve months ago. It was the highest number of first-time buyers since November 2007, indicating the improvement in the first-time buyer market is gathering even more momentum.
A sharp increase in the affordability of mortgages drove the improvement. The average mortgage rate fell from 4.92% in July last year, to 3.99% this year, attracting more buyers to the market. Rates have now fallen every month for the last year, as banks are passing cheap credit from Funding for Lending onto borrowers.
The cheaper rates meant that mortgages were more affordable for first-time buyers. The proportion of income represented by mortgage repayments fell year-on-year from 21.6% to 20.4%.
But there are warning signs ahead, with rapidly rising house prices threatening to price the next wave of first-time buyers out of the market. Deposits now represent a far greater proportion of the income of a first-time buyer, and are rising. The average deposit is now equal to 83.1% of annual income, up 5.0% on July last year – slowing the pace of the recovery in first-time buyer lending. This was a result of rising house prices, which have pushed average deposits skyward, despite banks’ willingness to lend to those with a smaller deposit size.
The average purchase price for a first-time buyer rose by 8% year-on-year in July, and is now £146,726. This was 0.3% higher compared than in June, when the average purchase price was £146,250 and 6.0% higher than the average price so far this year, which was £138,353.
And the average LTV for a first-time buyer remained broadly flat – down 0.4% year-on-year to 79.5% in July, and down just 0.1% from June.
David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said:
“Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits. Rates have fallen sharply, and there are good deals to be had for savvy first-time buyers, which has made a mortgage much easier to come by. The uptick in confidence, beneficial to both parties, is contagious.
“But there is a down-side to the good news. There is simply not enough housing stock to match continued demand. If supply fails to keep pace with demand the housing market will become increasingly unsustainable. Prices will rise sharply, and future first-time buyers will be left in the lurch. There is a desperate need for further cheap property in order for the run of success to continue.”
In July, 98% of registered tenants wanted to become a homeowner, up 2% from April, and 9% higher than in December, but only 12% are expecting to buy before the end of the year. Almost half (49%) are expecting to buy in the next five years, a significant increase from the start of the year. In December, only a third (36%) of tenants expected to buy in the next five years.
And tenants currently unable to become first-time buyers named the inability to save for a deposit as the biggest stumbling block to homeownership. More than half (46%) are unable to buy as they can’t save for a deposit, and a growing number of potential first-time buyers (19%) are concerned that rising costs like stamp duty will get in the way – up by a third from just 13% in December 2012.
The concerns over building a deposit are even more apparent in London and the South East. In this region, 55% of tenants who can’t afford to buy are prevented by high deposit requirements, 12% higher than in the rest of the UK. This is a result of prices in the capital rising more quickly than the rest of the UK. The latest England and Wales house price index from LSL shows that house prices in London have risen by 7.1% over the year to June, whilst prices in England and Wales as a whole rose by just 2.2%
Transaction costs such as legal fees and stamp duty are more of a concern to tenants in London and the South East, with over a quarter (27%) naming these costs as a key factor blocking them from purchasing property, compared to just 16% in the rest of the UK. Worries about having enough income for repayments played a lesser role than in the rest of the UK, concerning just 8% of potential first-time buyers.
David Newnes continues:
“It remains a huge challenge for first-time buyers to purchase property in the capital. House prices are more expensive, and the size of deposit required dwarfs that in the rest of the country. It’s the reason why six out of tenants in London can’t afford to buy. And there are further concerns for the London market. Higher legal fees and stamp duty costs are turning further first-timers off buying.”
The average first-time buyer in July was 30 years old, with an annual salary of £36,299 per annum, 4% higher than in July 2012, when the average salary was £34,936.
The number of first-time buyers who were able to self-fund their purchase fell to 41% in July, from 51% in April. 36% of all first-time buyers in the UK received financial help to put together a deposit from parents or relatives, whilst 9% benefitted from an inheritance, and 2% received familial help with mortgage repayments. 4% received financial help from a government scheme such as Help to Buy, up from 1% in April.
Once again, Londoners need the most help to get onto the ladder, with 44% of all first-time buyers in London receiving help towards a deposit, compared to just 33%, and just 36% of buyers able to self-finance.
44% of all first-timers were looking for houses with three or more bedrooms, and the second most popular property type were two bedroom houses (31%). Flats continue to attract far fewer first-time buyers – with just a quarter of buyers looking for flats rather than houses.
Four in ten (41%) first-time buyers said they were choosing to buy now as they had only recently been in a position financially stable enough to purchase a property, while a quarter (26%) chose to buy to own a house with their partner, and a second quarter (25%) feel it is time for them to settle down. Only 8% bought for investment purposes, expecting house prices to rise, down from 11% in April.
And first-time buyers are confident that the value of property is set to rise. Almost half (46%) of UK first-time buyers think that house prices will rise by up to 5% in the next year, while a further two in ten (18%) believe prices will rise between 5% and 10%. Only three in ten (28%) first-time buyers believe prices will remain flat in the next year, while less than 4% believe prices are likely to fall.
