fbpx

House price expectations fuel FTB spending

Ryan Fowler

March 28, 2014

There were 22,400 first-time buyer transactions in February 2014, up 42% from 15,800 in February 2013.

In February, 96% of tenants registered with Your Move and Reeds Rains wanted to become homeowners, up from 92% in December 2013.

More first-time buyers are moving as they anticipate prices rising in the next twelve months. Eight in ten (81%) first-time buyers expect prices to rise in the next year, with 48% predicting rises of up to 5%, a quarter (24%) expecting rises of 5 – 10% and a further 9% expecting prices to rise by more than 10%.

While 81% of first time buyers expect prices to rise, only 14% predict house prices will remain the same over the next year, and just 5% predict house prices to fall.

David Brown, commercial director of LSL Property Services, said: “The reason first-time buyers are taking advantage of Help to Buy in such numbers is that they expect prices to keep rising.

“That’s pushing up demand in the short term, which is supporting prices in the long term. Rising prices and growing transaction numbers are encouraging house building, which will boost the country’s housing stock.

“The question is whether supply will now catch up with demand of its own accord – or does the government need to do more to boost building? It may be time for an overhaul of the planning rules which have hampered house-building in the UK, delivering lower levels of house building at a time when the need for more new housing keeps growing.

“We asked first-time buyers what they thought house prices will do over the next 12 months and over 80% said they think prices will rise reflecting the fast growth in buyer confidence in the housing market.”

Since its introduction last year, Help to Buy has allowed more high LTV borrowers access to mortgages.  First-time buyer deposits fell 4% year-on-year to £25,773 in February, reaching a sixteen month low. Deposits have not been so low since October 2012, when the average deposit was £25,271.

Just one in ten tenants (10%) now think they will never be able to afford to buy, lower than in December (12%) and significantly lower than in December 2012 when 20% of tenants thought they’d never be able to buy – the highest in the last eighteen months.

David Brown, commercial director of LSL Property Services, said: “Help to Buy has catalysed the recovery of the first-time buyer market, by encouraging more lending to borrowers with smaller deposits. 

“The extension of the scheme announced in the Budget will see that support carried through until the end of the decade. 

“Despite pressure to slim down Help to Buy, the Chancellor has chosen not to abandon first-time buyers.  Instead, George Osborne is adding extra muscle to the new-build arm of the scheme.  While that will encourage more construction, it’s also offering first-time buyers a leg-up onto the housing ladder.”

Despite improvements in the mortgage market, saving for a deposit remains the biggest block to homeownership for prospective buyers.

Six out of ten tenants (56%) said the difficulty in building a deposit was one factor preventing them from buying in February.

The second most common concern was having enough income to support mortgage repayments (18%), followed by concerns over transactional costs like stamp duty and legal fees (17%) and concerns that an interest rate rise will push up repayments (13%) Additional worries included the possibilities of future unemployment (5%), falling house prices (5%) and decreasing income (4%).

Brown said: “The deposits that first-time buyers need have fallen to a sixteen month low – but that doesn’t mean that saving for a deposit is no longer an uphill struggle. Real wages are still falling.  Savings rates are still punishingly low.”

Nonetheless, one fifth (20%) of tenants expect to buy within the next year (2014/15) and a further half (48%) believe they will be able to buy within the next five years. Another fifth of tenants (20%) believe they will buy at some point in the future, but are unsure when.

Two-thirds (67%) of first-time buyers wanted to buy a house rather than a flat in February, with just under half (45%) looking for a house with three or more bedrooms, and a further quarter (23%) looking for a two bedroom house.

In February, the average first-time buyer was 31 years old and earning an annual salary of £36,330. However, first-time buyers in the capital have to wait longer, and earn more to get onto the housing ladder. In London and the South East, the average first-time buyer was 33 and earning £41,885 a year.

In London and the South East, six out of ten first time buyers (61%) are looking to purchase a flat rather than a house, five times more than in the rest of the UK (12%). 

Two-bed flats were the most popular choice for first-time buyers in the capital –  with over a third (35%) looking for this type of property.

First-time buyers in London are also more receptive to buying new builds.  Half of buyers in London and the South East (49%) said they were considering buying a newly constructed property, compared to just a quarter (25%) in the rest of the UK.

The three months to February saw vast differences throughout the UK in the average purchase price, deposit and number of first-time buyers per region.  First-time buyers in London paid more than three times as much as first-time buyers in Northern Ireland (with average purchase prices of £280,477 as opposed to £91,583).  The South East and the South West were the second and third most expensive regions for first-time buyers, with average purchase prices of £191,242 and £169,672 respectively.

Brown added: “Nearly all first-time buyers expect the property market to continue thriving this year, as the economic recovery strengthens. 

“But there remain significant variations across the UK.  Prices have been going up quickly in London and the South East, but for the savvy first-time buyer, there are still bargains to be had in areas like Northern Ireland and Wales.”


Sign up to our daily email