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First-time buyer transactions slip

While first-time buyer house prices rose by 4.7% to £141,918 in August, the affordability of both deposits and mortgage repayments improved on a monthly basis as the average income of a first time buyer rose. Deposits in August represented 73% of the average first-time buyer’s annual income, down from 81.7% in the previous month, while mortgage repayments account for 22.2%, down from 23.4% in July.
On an annual basis, the affordability of the average house purchase deposit improved slightly, with deposits representing 0.6% less of a buyer’s annual income. Mortgage payments are slightly less affordable than a year ago, climbing from 21.6% of a first-time buyer’s income as a result of larger mortgage advances. The average mortgage repayment rate for first-time buyers rose to 4.8% August from 4.6% a year ago.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said: “There are encouraging signs that lenders are relaxing deposit requirements, but it’s not translating into increasing first time buyer purchases. In fact, following a seasonal drop-off in August, first time buyer numbers are back to their level of a year ago. Lending criteria remains incredibly stringent, and lenders are cherry-picking those new buyers with the very cleanest credit histories and largest incomes, limiting the number of buyers able to take advantage of deals with the very highest LTVs.

“We may be seeing lenders begin to react to the Funding for Lending Scheme – but it’s crucial that cheaper finance reaches a much broader selection of new buyers to boost buyer activity and alleviate the pressure on the private rented sector.”

94% of registered tenants stated they wanted to become a homebuyer, but only 7% stated they expected to buy this year. More than half (54%) believed they would make a purchase within five years.

Despite higher average LTVs in August, prospective first time buyers still see saving for a deposit as the biggest obstacle to buying. 47% of buyers are not able to buy because they cannot put together a big enough deposit, up from 41% three months ago. 14% of buyers blamed high transaction costs, down from 15% in May. One in twenty (5.1%) stated the prospect of falling house prices concerned them.

David Newnes continues: “There’s clearly underlying demand for homeownership, but the size of the gap between those who’d like to buy and those who actually can reflects the frustration that thousands of potential buyers.

“The size of the average deposit may have dipped in August, but tenants are still baulking at the prospect of saving over £26,000 at a time when rents and the cost of living are rising at a greater rate than salaries. With higher transaction costs on the back of the re-instated stamp-duty tax earlier in the year, the initial cost of purchasing a home is still a bridge too far for the vast majority of would-be buyers.”   

The average first time buyer in August was aged 29 and had an income of £36,000, 2.9% higher than the average of £35,000 in July.

44% of first-time purchases were entirely self-funded in August, compared to 39% in May. However, the bulk of first-time buyers require family help to buy. Over half (53%) received familial help with deposits or mortgage payments, or through inheritance.  

Four in ten first-time buyers (39%) stated they are buying now because they have only recently been in the financial position to do so, up from 36% in May.

First-timers were most commonly looking for houses with two or more bedrooms. 28% were looking for a two bed house and 51% were seeking houses with three or more bedrooms. The next most popular type of property was two-bed flats, for which 14% of first-time buyers were looking in August.

David Newnes said: “The Liberal Democrats may be pushing for a change to allow parents to access pension pots to fund their children’s deposits, but the reality is that the Bank of Mum and Dad is already playing a key role in the current market. Four in ten borrowers receive direct help from family members to help fund downpayments on their first homes. It’s crucial those who do not have family wealth to fall back on are overlooked. The NewBuy scheme may offer limited relief in autumn’s home buying season, but it has yet to have anywhere near the level of impact necessary to revive historically low first-time buyer numbers.”  

On average, first time buyers expect house prices to rise by 3.2% in the next year, compared to 2.1% in May. In August house prices in England and Wales rose annually by 2.6% according to the LSL/Acadametrics house price index.

David Newnes concludes: “The picture is by no means the same across all parts of the country, but house prices have been steadily strengthening in recent months, a fact that has fed through into improved confidence from new buyers. Historically affordable interest rates, combined with optimism in the future direction of house prices is underpinning a desire for homeownership, especially when set in a context of the rising cost of rental accommodation.”   

First-time investors expect to remain in their properties for an average of 7.6 years. Only 3% of first time buyers expect to stay in a property for less than two years

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