Half of FTBs want to buy now

Amanda Jarvis

January 30, 2006

Half of first-time buyers think that now is the time to buy
But low salaries and existing debts are holding them back
This is a significant increase on last year when 25 per cent were feeling the same pressure. However, a quarter of would-be FTBs believe house prices will fall and they are waiting for a better price before they buy.

With many industry observers now forecasting a recovery in the housing market, the likelihood of significant house price reductions has reduced, so these FTBs may be disappointed.

Abbey’s chief economist, Barry Naisbitt, said: “The proportion of FTBs that feel they need to buy now has doubled since last year. However, we would urge FTBs not to panic-buy because purchasing a property is a significant commitment that requires careful consideration.

“If our forecast for house price inflation of 2 per cent this year is correct, then this suggests that there is less pressure to buy than if house prices were rising at 20 per cent per year.

“Any young people thinking of buying should try and save up as big a deposit as possible to get the best start. Our research shows that over 90 per cent of FTBs intend to save up for a deposit, but they are being held back by a limited disposable income and other financial commitments such as repaying credit cards and loans.

“Unless they are sure their personal debt is manageable, FTBs are not even starting from square one.”

Abbey questioned FTBs to find out the biggest single obstacle to saving their deposit. The responses included:

– Low salary — 33 per cent
– Existing personal debt such as credit cards — 15 per cent
– High rental expenses — 12 per cent
– Lack of savings ‘discipline’ — 9 per cent
– Graduate debt — 7 per cent

When asked how long they thought it would take them to save up for their deposit, 21 per cent of FTBs said it would take more than three years to get the money they need and a further 21 per cent thought it would take somewhere between two and three years in total. 29 per cent said it would take between one and two years.

So how much do FTBs intend to save and where will they get it from? Abbey’s research shows 23 per cent of prospective homeowners aim to have more than £13,000 as a deposit. Most FTBs save up for their deposit but there is also a reliance on family for support:

– 40 per cent save up for it personally
– 29 per cent save up for it with their partner
– 11 per cent save up for it, but get some help from family
– 7 per cent are relying on an inheritance
– 4 per cent intend to take a 100 per cent mortgage

Barry Naisbitt added: “Since most FTBs cannot rely on handouts, they have to save up in the traditional way, although more than a third save jointly with a partner or friend. Even for relatively affluent young professionals this isn’t easy and our survey shows that it can take years to get the funds needed.

“With a relatively small disposable income, one in three FTBs can only save up to £100 per month, which isn’t going to stretch very far. At this rate, it would take around nine years to save £13,000.”

Economic forecasts for 2006:

Abbey believes economic growth is expected to be a little stronger than 2005, but probably still below the long-term trend, which is generally taken to be around 2.5 per cent. Annual house price growth is again likely to be in low single digits — most likely around 2 per cent growth by the end of the year – with prices looking quite flat, albeit with some fluctuations, over the coming year.

Of the first-time buyers that Abbey questioned, 20 per cent believe that interest rates will increase this year, whereas eight per cent believe that interest rates will drop. 30 per cent said interest rate changes won’t affect their decision to buy, but 25 per cent say that if rates drop then they would be more likely to buy and 21 per cent say that if rates rise then they would be less likely to buy.

Sign up to our daily email