That’s why the mortgage and property industries pay so such close attention to the level of lending to first-timers. It allows us to assess lender confidence, as well as showing the extent to which those who have to push their finances hardest to make a purchase are being given enough incentive by prices and mortgage rates to take the plunge.
This is why, when property prices tanked following the credit crisis, the government moved swiftly and very sensibly to offer first-time buyers the fillip of a stamp duty holiday.
A 1% increase in the cost of a home makes a fundamental difference. For most first timers, the stamp duty payment comes out of their deposit. This means on a £250,000 house, they need to save an additional £2,500 before they can move a purchase forward. The CML tells us the average first-time buyer now has a salary of £33,805, meaning on a £250,000 purchase the stamp duty holiday saved them five weeks’ take home pay.
This would take much longer to save - especially if, as in most cases, the buyer has previously been renting, the cost of which is rising at an annual 3.5% according to LSL.
So, what was George Osborne thinking when he refused to extend the stamp duty holiday? The relief has hardly caused the first-time market to boom. It has been growing encouragingly, but not prodigiously, over the last year as lenders have regained their confidence that higher LTV lending is increasingly sustainable.
Perhaps – although nobody in government has explicitly suggested this – his thinking was that the New Buy scheme, making more finance available at up to 95% LTV, would give the market the boost it now needs. But the scheme is yet to bring in any serious commitments by lenders to expand their high-LTV activity and the numbers show we’re already seeing FTB numbers dropping away.
Nationwide’s latest house price index shows house prices dipped by 1% in March, wiping out the 0.1% annual growth reported in February. What’s significant is that Nationwide’s index measures mortgage approvals, rather than house purchase prices. It therefore gives a timely, if imprecise, measure of what will be happening to completion prices in April and May.
That March showed such a sharp fall demonstrates how many potential buyers dropped their purchasing ambitions once they realised they wouldn’t be able to beat the stamp duty deadline.
It should rile anyone with an interest in the ongoing health of the property and mortgage markets that while a government seeks to give with one hand it is delivering what looks like a hammer blow with the other.
It’s still too early to say New Buy won’t compensate as it gathers steam, but while we wait to see how lenders respond to the scheme, the great work done in the mortgage industry over the last year is in jeopardy from a lack of joined-up thinking among policy makers.
