There were 21,900 first time buyer transactions in December, 17.7% more than a year ago. In total, 2012 saw 219,400 first time buyers use mortgage finance with any size of deposit to secure their first home, a 14% increase on the total number in 2011.
The average mortgage rate for first time buyer dropped to 4.6% in December. This is the lowest rate since March 2012, and a fall from 4.72% in November.
However, it is buyers with bigger deposits that are benefitting from the lower rates as banks keep criteria tight. The average LTV fell slightly from 79.1% to 78.8% in December, a fall from 80.1% a year ago. The average deposit size for first timers rose to £28,525, 2.3% higher than in November.
As first time buyer house prices rose by 0.9% to £134,616 in December and the average LTV dropped in December, the affordability of deposits fell, representing 83.9% of a first time buyer’s average salary in the month. However, falling rates for those able to match lenders’ criteria offset the increased average mortgage advance, and mortgage repayments remained stable at 21% of an average first time buyer’s income.
On an annual basis, the affordability of the average deposit worsened from the 80.7% of a buyer’s annual income in December 2011. However, as a result of a smaller average mortgage advance and marginally wealthier first time buyers, mortgage payments are slightly more affordable than a year ago, falling from 21.3% of a first time buyer’s income last year.
David Brown, commercial director of LSL Property Services, said:
“2012 saw more new buyers on the move than the previous year, but the first time buyer market is a long way from rude health. The Funding for Lending Scheme hasn’t yet been a panacea for the market, but it is bringing down rates for those buyers able to meet lenders’ requirements. The size of deposits renters must save before they can move into their first home isn’t yet reducing, and this remains the key stumbling block from preventing new buyer numbers returning to anything like their pre-crunch level.”
“As is usual, applications showed signs of falling back in December, and it won’t be a shock to see a seasonal slide in completions in the early part of 2013. But with the easing of capital adequacy rules and a stronger labour market, we expect lenders to be able to better utilise the Funding for Lending scheme as the year progresses, and it could well improve the prospects for an increasing number of first timers.”
89% of registered tenants stated they wanted to become a homebuyer, but only 14% stated they expected to buy in 2013. Just over a third (36%) believed they would make a purchase within five years, while one fifth didn’t believe they’d ever be able to buy.
With LTVs falling back in December, prospective first time buyers still see saving for a deposit as the biggest obstacle to buying. 42% of buyers are not able to buy because they cannot put together a big enough deposit. 14% were concerned they didn’t have a big enough income to support mortgage payments, while 13% were concerned over high transaction costs. Just one in 16 (6%) stated the prospect of falling house prices concerned them.
David Brown continues: “There is still a yawning aspiration gap between those who want to buy, and those who are in any sort of position to purchase their first home. The fact that nearly one fifth of renters don’t believe they’d ever be able to buy highlights that when the first time buyer mortgage market returns to buoyancy, informing those frustrated renters of the changed climate will be a key priority.”
The average first time buyer in December was aged 28 and had an income of £34,000, 0.7% lower than the average of £34,223 in November.
Nearly half of all first time buyers (49%) in December required familial help to buy. Of those, 36% received direct financial help from relatives for their deposit, while 11% benefitted from an inheritance. 45% of first time purchases were entirely self-funded in December.
Four in ten first time buyers (38%) stated they are buying now because they have only recently been in the financial position to do so.
First timers were most commonly looking for houses with two or more bedrooms. 31% were looking for a two bed house and 40% were seeking houses with three or more bedrooms. The next most popular type of property was two-bed flats, for which 18% of first time buyers were looking in December.
David Brown said:
“Although the range of high LTV deals has improved, banks are still incredibly cautious about their level of lending in this bracket, and its still tough for most buyers to secure a mortgage without more than a 15% deposit. This is leaving thousands of buyers reliant on the Bank of Mum and Dad or other familial assistance to secure their first home, a fact which will need to change for the first time buyer market to return to full health.”
29% of first time buyers expect house prices to rise in the next year, compared to 14% who expect them to fall. In December house prices in England and Wales rose annually by 3.2% according to the LSL/Acadametrics house price index.
First time investors expect to remain in their properties for an average of 8 years. Only 4% of first time buyers expect to stay in a property for less than two years.
