First-time buyer transactions bounce back

Wealthier buyers pushed up first‐time buyer prices in May and the affordability of both deposits and mortgage repayments improved on a monthly basis. Buyers had to pay less for properties in May than their counterparts in February and March who were pushed to complete before the stamp duty deadline. Deposits in May represented 71.6% of the average first‐time buyer’s annual income, down slightly from 71.8% in the previous month, while mortgage repayments account for 19.6%, down from 21.6% in April.

On an annual basis the affordability of the average house purchase deposit has decreased, while the affordability of mortgage payments has improved from 22% of the average first‐time buyer’s income in May 2011. The average mortgage repayment rate for first‐time buyers fell in May from 5% to 4.9% and the average deposit rose to £25,839.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said: “May’s rise in first‐time buyer transactions shows the strength of underlying demand among those able to put up a large enough deposit. As the stamp duty effects began to wither, May saw first time buyer activity climb back after April’s drop‐off as buyers with strong finances, who were able to provide large deposits and borrow at lower LTVs, entered the market.

“The market is now being driven by buyers with enough money to absorb the additional tax burden. While the number of tenants able to leave the private rental sector remains historically low, those that can are taking the opportunity to enjoy the currently highly affordable mortgage rates on offer. With economic fears growing both inside and outside the UK, it’s highly unlikely we’re going to see a base rate rise in the foreseeable future, meaning tracker rate deals are currently offering very low‐cost access to finance. When making loans to buyers with large deposits, lenders have shown they are happy to let borrowers take advantage.”

99.6% of registered tenants stated they wanted to become a homebuyer, but only 25% stated they expected to buy within one year, while 50% stated they would make a purchase within five years.

The most common reason would‐be first time buyers are holding off from making a house purchase is their inability to put together an adequate cash deposit. High transaction costs were cited by 15% of buyers, indicated the return of stamp duty for purchasers below £250,000 continues to weigh on the minds of buyers. Only 4.7% stated the prospect of falling
house prices concerned them, indicating first time buyers still feel property is a sensible long‐term investment.

David Newnes continues: “The massive gap between those who want to buy and those who can reflects the widespread frustration of many would‐be buyers who currently can’t fund a large enough deposit. Building up enough cash to satisfy tighter lending criteria is by far the biggest problem facing those hoping to get a foot on the ladder.

“That only a very small proportion of those renting suggested they aren’t purchasing due to worries about the future direction of house prices indicates there’s still plenty of positive sentiment about the property market. Buyers clearly still feel buying a house is a good investment, which makes it all the more frustrating that the need to save a large chunk of cash and growing transaction costs are the main reasons they can’t take the plunge.”

The average first‐time buyer in May was aged 28 and had an income of £36,069. They were most commonly looking for houses with two or more bedrooms. 31% were looking for a two bed house and 35% were seeking houses with three or more bedrooms. The next most popular type of property was two‐bed flats, for which 21% of first‐time buyers were looking in May. More than a third of first‐time buyers stated they are buying now because they have only recently been in a position to do so.

The majority of first‐time buyers receive help from their families to fund a purchase. Only 39% of first time purchases were entirely self‐funded, while 57% received help in the form of inheritance, or direct assistance with the deposit or mortgage payments. Only 0.6% said they received help from a government first‐time buyer scheme.

David Newnes said: “While March and April saw big fluctuations in first‐time buyer activity as a result of a one‐off tax move, the long‐term picture shows there is steady ongoing demand from buyers who are struggling to put together enough cash. Well over half of first‐timers currently receive private help to get themselves on the property ladder.

“This data also shows the fundamental flaw in the government’s efforts to stimulate the market for first‐timers. While the return of stamp duty has clearly had a big impact across the market, the schemes like New Buy which are designed to replace it have helped less than one in a hundred buyers. That’s nowhere near enough to compensate from the fiscal body blow the government provided in March.”

Price expectations On average, first time buyers expect house prices to rise by 2.1% in the next year, with 47% stating they expected no change and 32% stating they thought prices would rise by up to 5%. In May, house prices in England and Wales rose annually by 1.9% according to the LSL/Acadametrics house price index. First‐time investors expect on average to remain in their properties for an average of 6.9 years. Only 3% of first time buyers expect to stay in a property for less than two years.

David Newnes concludes: “In the next year, first time buyers expect modest price growth in line with what we’ve seen over the last 12 months. But as the vast majority are looking at investing over a period of years, it’s clear there is still real confidence in the longer term. High rental prices combined with very affordable mortgage rates are also combining to
convince potential buyers they will be better off as owners.”

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