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FTBs at six year high

Ryan Fowler

January 24, 2014

There were 29,100 first-time buyer transactions in December 2013, a 30% increase on December 2012.

More first-time buyers were attracted to the market as banks increased lending to borrowers with smaller deposits.

The average deposit for a first-time buyer fell to £26,533 in December, 3.6% lower than a year before.

But despite falling deposits, first-timers are being forced to take out larger mortgages. The average mortgage climbed 11.4% over 2013 to reach £122,040 in December, as house prices continued to climb and the average first-timer purchase price hit £148,573.

David Newnes, director of LSL Property Services, said: “First-time buyers are returning to the market in their droves, as the property market emerges fully from the shadow of the financial crisis.

“There is a greater array of deals on offer to buyers with just a small deposit saved, and schemes like Help to Buy are providing vital support to help new buyers access the very best rates.

“As with the entire market, prices are quickly climbing upwards, but lower rates mean that mortgage repayments are still affordable, despite new buyers having to purchase property with a higher price tag.”

In December 2013, 92% of registered tenants wanted to become a homeowner, up from 89% in December 2012. Just over half of tenants (51%) are expecting to buy in the next five years.

However, only 6% are expecting to buy before the end of the year (down from 14% a year ago).

There also remains a minority of renters (12%) who believe they will never be able to afford to buy a property, although this figure compares favourably to a year ago, when 20% thought the same, suggesting household finances have improved.

Almost half of tenants (45%) named the difficulty in building a deposit as the biggest block to becoming a homeowner, 3% more than in December 2012.

Not having the income to support mortgage repayments was the second most common obstacle – and is a concern which has grown substantially over the past year from 14% of tenants in December 2012 to 21% of tenants in December 2013.

The average first-time buyer in December was 31 years old, with an annual salary of £36,621 per annum – 7.3% higher than in December 2012, when the average salary was £34,129.

First-time buyers typically had to wait longer to buy in and around the capital. The average first-time buyer was 32 in London and the South East with an annual salary of £41,616. But in the rest of the UK, the average first-time buyer was just 30, with an average annual income of £31,731.

Eight out of ten first-time buyers (78%) wanted to buy a house rather than a flat, with 43% of first-timers looking for a house with three or more bedrooms, one third (33%) for a two bedroom house, and just 1% for a one bedroom house. Flats were more popular in London – where a third of first-timers were looking to buy a flat, but overall remained the second choice for most first-time buyers.

Some 44% of first-time buyers were able to self-fund their purchase – a fall of just 1% from 45% a year ago.

While 37% of first-timers received financial help to put together a deposit from parents or relatives, 7% benefitted from an inheritance, and 2% received familial help with mortgage repayments.

Newnes said: “Many first-time buyers are hungry to make their first step onto the property ladder, but there are still several obstacles making it a difficult task. Inflation has finally hit target, but wage growth is still weak, and is being outpaced by rising house prices.

“New buyers have to save for an ever-increasing deposit to secure their first home, and four in ten first-timers are still reliant on financial help in order to make the leap.

“The Bank of Mum and Dad has long filled this gap, but while saving rates remain low and the cost of living high, many first-timers may need to look elsewhere for help, rather than rely on their parents dwindling resources.

“In the capital, house prices are climbing at break-neck speed, and increasingly first-time buyers are looking to flats as a more affordable alternative to houses. Buyers in London are generally waiting longer to get on the ladder, to give them time to climb higher in their careers and save for larger deposits.

“More house-building, particularly in and around the capital, would make help to make the market more accessible. If the government can help to reduce competition between buyers, by up-scaling the level of construction, it will help more city-based tenants realise their dreams of becoming home-owners.”

Nine out of ten first-time buyers (92%) are aware of the Government’s Help to Buy Scheme, with 7% of recent buyers using the scheme in order to help them get on the ladder.

Tenants appear less aware of Help to Buy. Only two-thirds (64%) of renters reported knowledge of the scheme, despite its recent prominence in the media. However, one third of tenants said they were more likely to purchase a property because of Help to Buy.

Opinions on whether Help to Buy will have a positive effect on the property market over the next year are mixed. Half of tenants and first-time buyers think the scheme will make it easier to get onto the property ladder, with 19% thinking it will make it easier to secure a mortgage specifically. But three in ten first-time buyers and tenants believe the government scheme will push prices upwards.

Newnes continued: “Help to Buy has created a whirlwind of activity in the first-time buyer market. It has encouraged more buyers to approach lenders for a mortgage, and increased the appetite for property among first-timers. But most importantly, Help to Buy has helped buyers access cheaper mortgage rates without having to save such a big deposit.

“However, a third of tenants and first-timers are worried that Help to Buy will push house prices higher. The scheme is only fruitful if the extra demand for houses is matched by the provision of more houses. A complementary ‘Help to Build’ scheme would help ensure house prices remain within reach for the bottom of the market.”

Four out of ten first-time buyers (39%) were choosing to buy as they had only recently been in a position financially stable enough to purchase a property, while a quarter (26%) wanted to buy to own a house with their partner, and a second quarter (24%) feel it is time for them to settle down.

Over one in ten (11%) of first-time buyers chose to buy in December as an investment for the future, as they expect house prices to rise.

Despite only a small proportion of buyers purchasing property for investment purposes, first-time buyers are predicting rises in property values. Nearly three-quarters (73%) of first-time buyers expect house prices to rise in 2014, with 44% anticipating rises of up to 5%, 24% predicting rises of between 5% and 10%, and 5% predicting rises of over 10%.

First-time buyers in the capital and surrounding towns are anticipating the biggest rise in property prices, with 7% of first-time buyers in London and the South East expecting property prices to increase by over 10%. This compares to just 3% in the rest of the UK.

In total, 86% of first-time buyers in London and the South East expect property prices to rise in 2014.

In Q4 2013, London and the South East saw the most first-time buyers, at 14,700 and 17,100 respectively. In the capital, the average deposit paid was £66,150, on a property with an average purchase price of £276,881.

By comparison, the least expensive regions for first-time buyers were Wales and Northern Ireland. The average first-time buyer deposit was just £11,605 in Wales – the lowest of any region in the UK, while the lowest average purchase price was in Northern Ireland, equalling just £85,815.


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