First Time Buyer Numbers up 15%

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First-time buyer numbers rose 15% in April, as more first-timers were able to access record low rates and a wider choice of mortgages, according to the latest First Time Buyer Monitor from LSL Property Services.

There were 22,000 first-time buyer transactions in April, almost 3,000 more than in March, when there were just 19,100 transactions. And the average mortgage rate remained low, only rising slightly to 4.31% in April from a record low of 4.29% in March. Annually, the average mortgage rate was 0.35% lower than in April 2012, with falling headline rates helping to attract more first-time buyers.

Buyers with smaller deposits began to reap the benefits from Funding for Lending in early 2013. The scheme has allowed lenders to offer more mortgages to high LTV borrowers. The average LTV in April 2013 rose to 80.4% from 79.9% in April 2012, reflecting greater lending to high LTV borrowers compared to last year.

However, the falling affordability of deposits kept a lid on bubbling growth in the market – and partially offset the improvements in first-time buyer mortgage availability – preventing a greater increase in transactions. The average deposit rose 3% to £27,178 in April, despite lower rates and a rise in the average LTV, because of rising house prices.

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Rising house prices also affected affordability for first-time buyers and were the primary cause for the hike in deposits. The average price of property purchased by first-time buyers rose 2.0% in April, to a high of £138,632.

Annually, the increase in property price is even more apparent – prices are now 12.1% greater than in April 2012. This has had significant impact on deposit sizes. Compared with last year, deposits now represent a 4.2% greater proportion of a first-time buyer’s wage. And as rising house prices drove a rise in the average deposit, mortgage repayments also rose as a proportion of a first-time buyer’s income.

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A great start to the year

There were 78.6% more transactions in April 2013 than a year ago, when there were just 12,300 transactions. However this figure is distorted, due to an artificial spike in first-time buyer numbers in March last year caused by the implementation of new stamp duty rules on the 25th March 2012, introducing a 1% stamp duty on properties valued between £125,000 and £250,000.

Considering this, it is all the more impressive that the total transactions in the first four months in 2013 has increased so significantly. The first four months of 2013 saw 72,900 borrowers secure a deposit for their first home, 15% higher compared to 63,300 in the first four months of 2012. First-time buyer lending so far this year is far stronger, even though the number of transactions in the first three months of 2012 was artificially high, thanks to the rush to beat the end of the stamp duty holiday.

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “Transactions among first-time buyers increased significantly in April as an improvement in the availability of high LTV mortgages allowed more first-time buyers to realise their dreams of homeownership. Increased lender confidence has lead to lower rates and a wider range of first-time buyer mortgages. The result: a super-strength opening to 2013 that has seen 15% more first-buyers than last year.

“But weak wage growth and rising house prices are stymieing first-time buyer lending, and keeping a lid on a market that could otherwise be boiling away happily, by preventing further transactions. Mortgage rates may be at record lows but repayments are equal to a larger proportion of the average first-time buyer’s wage. And the size of the deposit they must save before they can purchase has increased both in monetary value and as a proportion of wage – a second blow for potential buyers that is large enough to knock many out of the ring and prevent them from buying.

“Schemes like to Help-to-Buy are designed to launch a counter-offensive on deposit requirements. But the scheme may actually inflate property prices, so may turn out to be counter-productive.”

The Aspiration Gap

96% of registered tenants wanted to become a homeowner in April, up from 89% in December, but only 10% (down from 13%) believed they would be able to buy in 2013. Four in ten tenants (42%) believed they would make a purchase within five years, while 15% thought they would never be able to afford to buy.

Despite a rise in the average LTV in April, almost half (45%) of first-time buyers named an inability to save for a deposit as the number one reason preventing them from purchasing property. The second and third biggest blocks to homeownership were concern over not having a big enough income to support mortgage payments (15%) and concern over transaction costs being too high (14%) respectively. Just one in twenty buyers were concerned about either falling house prices (5%) or unemployment (5%)

David Newnes continues: “While desire to become a homeowner is high and rising, the number of tenants who are expecting to buy by the end of the year has hit a low. It’s a case of an aspiration gap that is growing wider still as deposits become less affordable, and poor wage growth and high inflation loot the savings of those looking to buy.”

The profile of a first-time buyer

The average first-time buyer in April was 30 years old, and earning £33,268 per annum, 3% lower than the average of £34,405 in March.

The number of purchases entirely self-funded by first-time buyers was 51% in April as almost half of all first-time buyers (49%) received help to buy from an outside source (such as their family, or a government scheme). Well over a third of first-time buyers (36%) received direct financial help to buy from their family, a further one in twelve (8%) were using funds from an inheritance, while just one in a hundred (1%) was aided by a government scheme.

Over a third of all first-time buyers (37%) said they had only recently been in a financially sound enough position to buy, while 11% bought as they believe it is a good time to invest because they expect house prices to continue to rise.

The most popular properties for first timers were houses with three or more bedrooms, with 44% looking for at least three bedrooms. A third of first time buyers (32%) were looking for houses with two bedrooms – the second most desirable property type. Flats were far less desirable to first-time buyers than houses, with only 21% of buyers were looking to purchase a flat in April.

David Newnes said: “The average earnings of a first-time buyer declined in April, and deposits are now forming a larger percentage of their income. Many are turning to family to help them build enough capital to form a deposit as a result. And, as purchasing property remains difficult for first-time buyers, they are looking to buy as a longer term investment, and often with family in mind. Houses are far more attractive then flats to first-time buyers, now with an average age of 30, as they provide the much needed room to allow a new family to grow.”

Price expectations

Four in ten first-time buyers believe house prices will remain steady in the next year, while almost half (46%) think they will increase by up to 5%. Only 8% of first time buyers expect prices to fall in the next year.

And first-time buyers are buying property as a fairly long-term investment. Two-thirds of first-time buyers (62%) expect to stay in their property for more than 5 years, while lower than one in fifty are planning to move in less than two years.

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