First-time buyer demand stabilising

  • October sees 26,500 first-time buyer completions — up 1% compared to 26,300 a year ago
  • Average first-time buyer purchase price climbs 4.1% year-on-year to £152,684 in October
  • Lack of understanding over new regulation: Four in ten buyers think LTI caps mean it is now more difficult to get a mortgage than six months ago

The number of first-time buyer house completions stalled in October, as demand began to ebb away at the bottom of the market, according to the latest First Time Buyer Opinion Barometer from Your Move and Reeds Rains.

There were 26,500 first-time buyer completions in October 2014, 0.8% more than a year ago, and 1.1% fewer compared to 26,800 in September. First-time buyer transactions have now fallen back 12.3% over the last three months, however the rate of slowdown is beginning to ease. A monthly slowdown of 1.1% between September and October compares to falls of 7.3% between August and September and 4.3% between July and August.

The average purchase price for a first-time buyer property rose 4.1% year-on-year to reach £152,684 in October 2014. Over the same period, the average first-time buyer deposit has fallen 6.0% – boosted by a greater variety of options for higher LTV borrowers — and now sits at £26,046, compared to £27,719 a year ago. The size of an average first-time buyer mortgage climbed 6.5% year-on-year in October to £126,638.

David Newnes, director of estate agents Your Move and Reeds Rains, said: “Help to Buy reinvigorated the bottom of the market by adding that vital ingredient — confidence. But other factors have pulled this back over the last few months: confusion over a base rate rise, global uncertainty, falling house prices and an inadequate supply of affordable homes have all contributed to a hesitation among first-timers about whether now is the right time for them to buy.

“Stalling first-time buyer completions is down to dipping demand, rather than mortgages becoming less accessible. Compared to a year ago, there are now more options for first-time buyers unable to save up large deposits to get on the ladder. Cheaper rates have also played a part, by allowing first-time buyers to lock into cheaper monthly repayments.”

THE LTI CAP EFFECT

There is still a lack of understanding about loan-to-income caps and their potential effects on the mortgage application process. When asked about their understanding of the caps, seven out of ten (67%) first-time buyers said they have never heard of them, while a further sixth (14%) answered that they have heard of them but don’t understand what they are. Just one in five (20%) first-time buyers have heard of loan-to-income caps and understand what they are.

Additionally, a large proportion (42%) of first-time buyers believe loan-to-income caps have made it more difficult to get a mortgage compared to six months ago. A further 48% are unsure of the effects of the caps, and only one in ten (10%) believe the introduction of loan-to-income caps has had no effect on how difficult it is to get a mortgage.

The latest e.surv Mortgage Monitor showed a drop off in higher LTV lending in October. Lending to borrowers with a deposit of 15% or less of the total value of their property constituted just 14.9% of all house purchase borrowers in October, the lowest percentage in six months. Their share of the market had been stable from June to September, fluctuating very slightly between 17.4% and 17.8%.

David Newnes, director of estate agents Your Move and Reeds Rains, said: “Loan-to-income caps are the latest wave of regulation to hit the mortgage market, following the tide-change brought in by the Mortgage Market Review earlier this year. Although they have were intended as a preventative measure to restrict lending to those on tighter incomes, they do have in-built flexibility — and even the Bank of England expected their initial impact to be limited.

“However, our research shows that loan-to-income caps are still widely misunderstood, and four in ten first-timers believe they have made it more difficult to get a mortgage compared to six months ago. The regulation may have been brought in as a safeguard for the future, but it has had an immediate effect in dampening demand, and needs to be explained better.”

THE ASPIRATION GAP

Despite the recent fall in first-time buyer demand, more people believe they will be able to buy at some point in the future.

A fifth (20%) of tenants expect to be able to buy by the end of 2014/2015, compared to just 6% in December 2013. A further two fifths (40%) believe they will be able to buy within the next five years. Under one in three tenants (28%) believe they will buy at some point in the future, but cannot pinpoint when. Only 9% of tenants surveyed in October think they will never be able to afford to buy, three percentage points lower compared to December 2013 (12%).

In October 2014, 93% of tenants registered with Your Move and Reeds Rains wanted to become homeowners.

FINANCIAL HELP FOR FIRST-TIME BUYERS

Four in ten first-time buyers (41%) surveyed in October had only recently been in a position to be able to buy. Other popular reasons for getting onto the housing ladder were the desire to settle down (24%) and the desire to own a home with their partner (28%). Just 6% of first-timers chose to buy as an investment for the future — compared to 11% in December 2013 — reflecting the slowdown in house price growth over the last year.

Over half of first-time buyers (54%) are receiving some kind of financial help with their purchase. A third (36%) received support from their relatives to put together a deposit; 11% used money from an inheritance and 5% made use of government schemes like Help to Buy. However, the proportion of first-time buyers self-financing their purchase (46%) has risen slightly compared to December 2013 (44%).

David Newnes, director of estate agents Your Move and Reeds Rains, said: “Even though slightly more first-timers are self-financing than a year ago, over half of purchases are still reliant on outside financial help — by and large mostly with putting together a deposit. This is putting pressure on parents and relatives of first-timers, many of whom have seen their own savings eroded since the recession, with inflation consistently tracking above the base rate. Until more first-timers are able to self-finance, it is important to keep the support mechanism of Help to Buy in place to provide a financial leg-up to those buyers who can’t rely on family and friends.”

REGIONAL DIFFERENCES

In London and the South East, the average first-time buyer was 31 years old and earning £44,800 in October, whereas in the rest of the UK, the average first-time buyer was 30 years old and earning £33,000.

First-time buyers in the capital paid an average of £270,881 for their property in the three months to October 2014, compared to £145,992 across the UK. The average first-time buyer deposit in London was £73,913, compared to an average of £26,711 across the UK.

David Newnes, director of estate agents Your Move and Reeds Rains, said: “The affordable housing conundrum is even more of problem in London, where the lack of affordable housing stock is artificially inflating first-time buyer purchase prices. As a result, London first-time buyers have to wait longer to get on the housing ladder. Mansion tax is high up on the agenda for London — but it is important that the other end of the buyer spectrum doesn’t get forgotten. First-time buyers have propped up activity over the last year, and they require continued support, otherwise a large driver of activity in the capital could fall away.”

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