First-time buyer activity in decline before Covid-19 hit: UK Finance

Mortgage lending was flat in the first three months of 2020 compared with a year ago, with an increase in buy-to-let activity offset by a drop in first-time buyers, according to the latest data from UK Finance.

Related topics:  Mortgages
Rozi Jones
4th June 2020
first time buyer ftb buyer young couple house
"It is interesting though to see that the first-time-buyer market had been declining across most of the country even before the crisis."

The figures show that first-time buyer numbers have been declining slightly since October 2019 and have remained subdued in aggregate, however UK Finance noted that there have been wide regional variations in activity, likely due to Covid-19 disruption.

In London and the South East, growth in Q1 was much stronger than Q4 2019. This differs from the rest of the UK, where there has been a drop-off in growth in Q1 in almost every geography.

This trend is particularly marked in the devolved nations and the North of England, with year-on-year drops in volumes reaching as high as 10%. While these negative growth rates have affected the UK’s overall growth, the improvement in first-time buyer lending in the South has offset the drop elsewhere, leading to a relatively modest overall decline of 3%.

For those regions now showing a year-on-year decline, the rate of decline looks to have accelerated throughout the quarter. In the majority of regions there was a drop in January followed by more significant falls in February and March in first-time buyer completions.

Again, southern England was less affected by this trend, with the most pronounced – and accelerating – declines concentrated in northern England, Northern Ireland and Scotland. In geographies such as Yorkshire, Scotland and Northern Ireland, these declines in activity follow overall first-time buyer growth in 2019, whereas the south of England had declines in FTB activity last year.

Interestingly, this is not a movement seen across the whole house purchase market. While homemover activity in the south of England is consistent with first-time buyer activity there, homemovers in the rest of the UK have behaved differently to first-time buyers.

In Northern Ireland, which saw large declines in first-time buyer activity, there was strong homemover growth. Likewise, Wales saw homemover growth in both quarters as opposed to drops in first-time buyer volumes in both quarters.

In only four of the 13 regions was lower growth recorded for homemovers in Q4 2019 than in Q1 2020, compared to nine of the 13 geographies where this was the case for first-time buyers.

Offsetting a decline in first-time buyers, buy-to-let house purchases increased by a comparatively large 7% in Q1 2020 compared to the same period in 2019.

Richard Pike, sales and marketing director at Phoebus Software, said: “We can now see exactly how the first quarter of the year panned out and how the coronavirus lockdown had an almost immediate affect on the housing market. It is interesting though to see that the first-time-buyer market had been declining across most of the country even before the crisis. This could be a trend that continues, at least until housebuilders get back to full capacity and new build properties start to become available again.

“However, from every negative there is a positive and it appears that, without the general ability to ‘go out’ and spend money, people have not only spent less on credit, but have managed to save and also pay off debt. The number of borrowers that have taken payment holidays at 1.8 million to date, is considerable and lenders will have to be vigilant as the next wave apply for the extension until the end of October. As repossessions are also on hold, we could find that come November we have many households that will find themselves facing higher monthly payments than they had been managing before the break. This will be something that lenders will need to manage carefully.”

Mike Scott, chief property analyst at Yopa, commented: "The Household Finance Review for the first quarter of this year was published today by UK Finance. Obviously the Covid-19 pandemic and the lockdown only affected the last few days of the quarter, and so these figures largely give us a snapshot of the economy immediately before the onset of the crisis.

"First-time buyer mortgage approvals fell slightly in most of the UK (compared with the same period in 2019), but increased in London and the South East, suggesting that the falling house prices in those regions in 2019 had improved affordability for first-time buyers, who were able to get into the market. Much of the decrease in the numbers took place in March, suggesting that the pandemic was largely responsible and may have been beginning to affect housing market activity even before the beginning of the full lockdown on 23 March.

"Most notably, there was a 7% year-on-year increase in the number of buy-to-let mortgages, the first significant increase since the tax regime was changed to reduce the attractiveness of buy-to-let investments. With interest rates at historic lows, buy-to-let property may be regaining its appeal as an investment - despite its unfavourable tax treatment.

"Virtually all new mortgages for the past three years have been fixed-rate rather than floating-rate deals, with five-year fixes becoming increasingly common, and 70% of all mortgages still outstanding are fixed-rate. This means that any increases in Bank of England interest rates as we begin to recover and move on from the pandemic will have little immediate effect on home-owners' finances. In addition, mortgage arrears had reached historic lows before the beginning of the lockdown. This means it is unlikely that we will see a wave of mortgage defaults and repossessions when the furlough scheme and the current mortgage holidays come to an end, which should help to avoid any serious downturn in house prices."

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