Record low rates and a wider choice of available mortgages are said to be the cause of a 15% increase in first-time buyers in April, according to the latest First Time Buyer Monitor.
There were 22,000 first-time buyer transactions in April, almost 3,000 more than in March, when there were just 19,100 transactions. The average mortgage rate remained low, only rising slightly to 4.31% in April from a record low of 4.29% in March. Annually, the average mortgage rate was 0.35% lower than in April 2012, with falling headline rates helping to attract more first-time buyers.
Buyers with smaller deposits began to reap the benefits from Funding for Lending in early 2013, a scheme which allowed lenders to offer more mortgages to high loan to value (LTV) borrowers. The average LTV in April 2013 rose to 80.4% from 79.9% in April 2012, reflecting greater lending to high LTV borrowers compared to last year.
However, the falling affordability of deposits kept a lid on growth in the market
– and partially offset the improvements in first-time buyer mortgage availability thus preventing a greater increase in transactions. The average deposit rose 3% to £27,178 in April, despite lower rates and a rise in the average LTV, due to rising house prices.
Rising house prices also affected affordability for first-time buyers and were the primary cause for the hike in deposits. The average price of property purchased by first-time buyers rose 2.0% in April, to a high of £138,632.
Annually, the increase in property price is even more apparent with prices now 12.1% greater than in April 2012. This has had significant impact on deposit sizes. Compared with last year, deposits now represent a 4.2% greater proportion of a first-time buyer’s wage. As rising house prices drove a rise in the average deposit, mortgage repayments also rose as a proportion of a first-time buyer’s income.
There were 78.6% more transactions in April 2013 than a year ago, when there were just 12,300 transactions. However this figure is distorted due to an artificial spike in first-time buyer numbers in March last year caused by the implementation of new stamp duty rules on the 25th March 2012, introducing a 1% stamp duty on properties valued between £125,000 and £250,000.
Considering this, it is all the more impressive that the total transactions in the first four months of 2013 has increased so significantly. The first four months of 2013 saw 72,900 borrowers secure a deposit for their first home, 15% higher compared to 63,300 in the first four months of 2012. First-time buyer lending so far this year is far stronger, even though the number of transactions in the first three months of 2012 was artificially high, thanks to the rush to beat the end of the stamp duty holiday.
Mike Ford, owner and director of Edison Ford Estate Agents, Property & Lettings said: “Improvements in the availability of high LTV mortgages allowed many more first-time buyers to achieve their dream of homeownership. This combined with increased lender confidence has led to lower rates and a wider range of first-time buyer mortgages being available all contributing to a significantly higher number of first time buyer transactions in April. The result: a super-strength opening to 2013 that has seen 15% more first-buyers than last year.
“However weak wage growth and rising house prices are thwarting some first-time buyer lending, preventing further transactions. Mortgage rates may be at record lows but that is not reflected in the repayments which, in real terms, are equal to a larger proportion of the average first-time buyer’s wage. This combined with the size of the deposit they must save increasing in both monetary value and as a proportion of wage many are still prevented from buying.
“Schemes such as Help-to-Buy are designed to counter deposit requirements but may actually inflate property prices, turning out to be counter-productive.”
96% of registered tenants wanted to become a homeowner in April, up from 89% in December, but only 10% (down from 13%) believed they would be able to buy in 2013. Four in ten tenants (42%) believed they would make a purchase within five years, while 15% thought they would never be able to afford to buy.
Despite a rise in the average LTV in April, almost half (45%) of first-time buyers named an inability to save for a deposit as the number one reason preventing them from purchasing property. The second and third biggest blocks to homeownership were concerns over not having a big enough income to support mortgage payments (15%) and transaction costs being too high (14%). Just one in twenty buyers were concerned about either falling house prices (5%) or unemployment (5%)
Steve Clowes, tenancy and property expert at Edison Ford says, “Whilst the desire to become a homeowner remains high, the number of tenants who are expecting to buy by the end of the year has hit a current low. Aspirations outstripping finances, deposits less affordable, poor wage growth and high inflation all contribute to first-time buyers being unable to make that leap.”
The average first-time buyer in April was 30 years old, and earning £33,268 per annum, 3% lower than the average of £34,405 in March.
The number of purchases entirely self-funded by first-time buyers was 51% in April as almost half of all first-time buyers (49%) received help to buy from an outside source (such a family member or a government scheme). Well over a third of first-time buyers (36%) received direct financial help to buy from their family, a further one in twelve (8%) were using funds from an inheritance, while just one in a hundred (1%) was aided by a government scheme.
Over a third of all first-time buyers (37%) said they had only recently been in a financially sound enough position to buy, while 11% bought as they believe it is a good time to invest because they expect house prices to continue to rise.
The most popular properties for first timers were houses with three or more bedrooms, with 44% looking for at least three bedrooms. A third of first time buyers (32%) were looking for houses with two bedrooms – the second most desirable property type. Flats were far less desirable to first-time buyers than houses, with only 21% of buyers were looking to purchase a flat in April.
Steve Clowes goes on to say, “With deposits now forming a larger percentage of their income and the average wage of a first-time buyer having declined in April many are turning to their family to help build enough capital to form a deposit. With the purchasing of property remaining difficult for first-time buyers, they are often looking to buy as a longer term investment, often with family in mind. Houses remain a more attractive purchase than flats to first-time buyers, as they provide the much needed room to allow a new family to grow.”
Four in ten first-time buyers believe house prices will remain steady in the next year, while almost half (46%) think they will increase by up to 5%. Only 8% of first time buyers expect prices to fall in the next year.
First-time buyers are buying property as a fairly long-term investment. Two-thirds of first-time buyers (62%) expect to stay in their property for more than 5 years, while lower than one in fifty plans to move in less than two years.