The future for first-time buyers


February 23, 2012

 Brian Murphy is head of lending at Mortgage Advice Bureau


Will we ever see a mortgage market like the one in 2007? One where the lending volumes broke records every year, house prices rose on almost a monthly basis, and competition among lenders drove pricing and innovation to new levels?


While some would say the markets are cyclical and it will eventually return as it has done in the past, others may say they hope we never return to those days in case it precedes another financial meltdown.


Whichever side of the fence you sit on, one thing is clear, right now we are still a long way away from being in a market like this. However, as we move towards spring this is not to say there are not some green shoots of positivity in the market.


Over the last few years first-time buyers have become accustomed to the perception that a minimum deposit of 20% or 15% of the purchase price is required.


But in the last couple of months there has been a feeling that some lenders have started to rediscover their appetite, albeit in a more responsible and conservative manner, and there are now a lot more competitive 90% and 95% LTV mortgages back on the market.


Data from Moneyfacts confirms this and shows the number of 95% loan-to-value mortgage deals available to first-time buyers is at a four-year high, with 59 deals currently available from 21 different lenders. As an indication of just how the market had tightened, this figure is up from just 25 in February 2011, and only three at the same time in 2009.


Some firms have already reported an increase in the number of first-time buyers at the start of the year, but there have been concerns raised that this is more to do with the end of the temporary Stamp Duty concession for first-time buyers than on the renewed lender interest.


However even though the stamp duty holiday is due to expire on 24 March, I would argue that it will have little impact on the housing market although we may see something of a hiatus in the market in the second quarter while prospective first time buyers save those increased costs that they will be forced to find.


While we should still hope the government reconsiders the decision to remove the stamp duty holiday as its removal will create unnecessary confusion and may result in some transactions that do not complete before the deadline falling through further undermining confidence.


All the official data shows the concession has actually done little to stimulate the market since the 1% tax for first-time buyers purchasing properties worth between £125,000 and £250,000 was removed two-years ago but no-one is able to say what the effect on the market would have been if the concession had not been in place!


Notwithstanding that to me the biggest constraint has been deposit affordability, so even if the government does let the concession come to an end in March I don’t think that numbers of first-time buyers will tail off, thus proving that the greater number of 95% LTV mortgages currently available is a bigger driver of activity.


I admit that lenders remain cautious and not all first-time borrowers will be able to meet the criteria, but I think that the government’s new proposal to help borrowers with small deposits will have more of an impact.


We’ve not seen details from lenders yet, but the government’s proposed mortgage indemnity scheme – NewBuy – will guarantee 95% loans up to £500,000 on new-build homes, with developers and taxpayers providing funding.


Together with lenders increased appetite for higher LTV mortgages I believe this will provide a stronger stimulus for the market than the stamp duty holiday did.


 Our expectations for the rest of the year are that it will be broadly similar to 2011, with activity levels remaining subdued relative to historic levels. But if the market is to recover to anything like a more normal level of transactions then it needs to start taking steps.


Encouraging more first-time buyers into the market will stimulate demand and have a positive knock-on effect on the rest of the market, so hopefully we will eventually be able to look back and say this is when the recovery started.

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