First-Time Buyers Rise 28% Year-on-Year in November as Average Mortgage Rates Fall to Lowest in Three Years

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The number of first-time buyers climbed 28% year-on-year in November thanks in part to the lowering of mortgage rates by lenders, according to the latest First Time Buyer Tracker from LSL Property Services.

 

Transactions

Average Purchase Price (£)

Average LTV

November 2013

27,800

£149,404

81.3%

October 2013

26,800

£149,375

81.1%

1 month change

+3.7%

+0.0%

+0.2% (from 81.1%)

3 month change

+5.3%

+1.7%

+1.0% (from 80.3%)

1 year change

+28.1%

+11.4%

 +2.2% (from 79.1%)

There were 27,800 first-time buyer sales in November, 6,100 more than a year ago, showing improvements in the first-time buyer market are gathering even greater momentum.

The average first-time buyer LTV rose to 81.3%, the highest since September 2011, in a sign of the increased availability of mortgages as banks become more willing to lend to those with smaller deposits. As a result the average deposit size fell to £27,942, a 3.4% fall in the past three months, attracting more aspiring buyers back into the market.

Deposits consequently now represent a smaller proportion of first-time buyer incomes, with the average deposit of a new buyer equalling 76.6% of annual income, a 5.8% fall over the course of the last twelve months.

The increase in first-time buyer activity has also been fuelled by the improved affordability of mortgages. In November the average mortgage rate fell to 3.93%, down 0.8% since last year, with banks having being able to pass cheap credit from Funding for Lending onto borrowers.

But there are warning signs ahead, with rising house prices potentially threatening to price the next wave of first-time buyers out of the market. The average purchase price for a first-time buyer rose by 11.4% year-on-year in November, and now stands at £149,403 – up £15,340 in the last twelve months.

Similarly, although the cheaper rates meant that mortgages were more affordable for first-time buyers, the proportion of income represented by mortgage repayments is starting to creep up as house prices rise. Mortgage repayments have increased 0.1% in the past month and 0.4% over the past three months, despite consistently falling mortgage rates.

First-Time Buyer Affordability

 

Average deposit (£)

Deposit as proportion of income

Average mortgage rate

Mortgage repayment as proportion of income

November 2013

£27,942

76.6%

3.93%

21.0%

October 2013

£28,243

77.5%

3.94%

20.9%

1 month change

-1.1%

-0.9%

-0.01%

+0.1%

3 month change

-3.4%

-3.6%

-0.02%

+0.4%

1 year change

-0.4%

-5.8%

-0.79%

-0.2%

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “There has been a revival in the first-time buyer market over the past twelve months, with sales increasing by nearly a third. Mortgages are much more affordable, which has opened the door to welcome in thousands of aspiring homeowners who had previously been locked out of the market. A boost in economic confidence has attracted more buyers back to bricks and mortar, while banks have equally been far more prepared to lend to those with smaller deposit sizes.

“Rates have fallen, and there is now an array of attractive deals on offer for shrewd first-time buyers, which has made mortgages far easier to secure. The spark has been government schemes like Funding for Lending and the equity loan first phase of the Help to Buy scheme. Although Funding for Lending has been cut back, the mortgage guarantee scheme, second phase of Help to Buy introduced in October, will really kick into gear in the next few months. It will be this that will carry the torch through into 2014.”

“However there is a flipside to the coin. Prices are rising and there is simply not enough housing stock to match continued demand, meaning this will continue well into 2014. If demand is not satisfied by supply, then sustainable growth will be hampered and future first-time buyers will once again be left out in the cold. We need far more homes, particularly at the lower end of the spectrum if we are to sustain a healthy property market.”

On a regional level, there continues to be disparity across the UK with stark differences throughout the country in property values, deposits required and mortgages taken out for those entering the property market. In the three months to November the South East saw the greatest number of first-time buyers, with 15,600 sales across the region, closely followed by London at 13,400. This is despite the fact that first-time buyer properties in the capital and the South East have required the largest average deposits, at £67,623 and £37,788 respectively.

By comparison, in the North West first-time buyers only require an average deposit of £15,791 with an average purchase price of £112,820. This therefore means that new buyers in these Northern regions only have to take out an average mortgage of £97,508, whereas by comparison those in London have an average mortgage of £208,448.

Wales in particular has experienced uplift in first time buyer activity, largely to a required average deposit of just £11,683 and purchase price of £107,038.

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, concludes: “Although a flag has been planted in the nationwide recovery, up and down the country we are seeing contrasting fortunes for first-time buyers eager to enter the property market. Price rises in the capital and South East are surging ahead of those in the rest of the country, and the resulting deposits needed to get onto the ladder are following suit. Buyers in the North are faring better in this respect. They have less of a mountain to climb to reach the summit of the required deposit.

“However, while potential homeowners in Northern region have smaller deposits to accrue, they are – as a whole – less cash-rich than those in the capital and the surrounding areas, which therefore necessitates them taking out higher LTV mortgages. With many anticipating a rise in interest rates next year, many new homeowners across the country will feel a greater pressure on their finances – especially with repayments as a proportion of income starting to creep up.

“It is startlingly evident that while the UK-wide latest phase of the Help to Buy scheme is having a positive effect, a more tailored and less of a ‘catch all’ approach is needed.  One that meets the varying needs of aspiring buyers across the regions. This will be crucial in alleviating the regional disparity and preventing the wall of obstacles that first time buyers have to scale from mounting further.”

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