A quarter of new residential house purchases were made by first-time buyers between April and June, according to the latest figures from the Bank of England.
During this three month period of time – in the run up to the end of the full stamp duty holiday – the amount of money lent to borrowers hit £89 billion, which is the highest point since 2007 and more than twice the level experienced a year earlier.
But it was the fact so many first-time buyers had contributed to the borrowing figures which has piqued the interest of many. Indeed, of buyers who planned to live in their property (as opposed to renting it out) – nearly 25% were first-time buyers during these three months.
This is 6.5% more first-time buyers than the same time last year. Since the start of the year lending to first-time buyers has increased by 2.8%.
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, thinks it was a dose of FOMO (fear of missing out) which contributed to so many first-time buyers taking the plunge. With house prices rising, she thought many new buyers were getting on the ladder before the values soared out of reach.
And she thinks this helped fuel the rush for mortgages ahead of the stamp duty holiday deadline, pushing them higher than any time since the financial crisis.
Factors influencing first-timers
Interestingly, first-time buyers did not benefit as much from the stamp duty holiday as others because incentives were already in place for those making their first step into homeownership.
Therefore it is thought the combination of low mortgage rates and the fact people had been able to save more during the lockdowns had helped fuel the first-time buyer market too.
“The fact that these buyers have less to gain from the stamp duty holiday itself demonstrates that the property boom isn’t over yet,” Sarah said.
Indeed, the stamp duty holiday is current still running with the first £250,000 of the property purchase subject to the exemption. This will finish on 30 September and after this time the stamp duty nil rate will apply to the first £125,000 of a property – which was what applied before the holiday was introduced.
However, first-time buyers benefited from stamp duty discounts on property purchases up to £500,000 before the holiday was introduced.
Sarah explained, this meant today’s figures became particularly significant, because first-time buyers had far less to gain from the stamp duty holiday than anyone else.
“They are already exempt from stamp duty on properties worth less than £300,000, and on properties worth £300,000 to £500,000, they only pay 5% on the property value over £300,000.
“Given that the average first-time buyer property in March cost £214,452, most of them don’t have stamp duty to pay anyway.”
Low mortgage rates
“Instead, they’ve been driven by other forces in the market, which aren’t going anywhere in a hurry. Rock bottom mortgage rates, and the fact some people were able to save more money during lockdown, made the move add up for more prospective buyers,” she added.
“FOMO played its part, as rising house prices convinced buyers to take the plunge before prices rose out of reach. And it helped that the prices of typical first homes, especially flats, have risen less than those for houses, as current owners have joined the race for space.”
Falling house prices
The first-time buyer figures also inflated at a time when house prices were on the rise. Karen Noye, mortgage expert at Quilter, said if prices were to start falling as the rush to beat the stamp duty deadline declined following the 30 September, it would present more opportunities.
“The silver lining is that any reduction in house prices could help the vast population of younger first-time buyers shut out of the market at the moment due to the spike.
“The next couple of years may prove to be a golden opportunity for generation rent. However, today’s data shows there has not been a huge rise in the number of 90% LTV or above mortgages as they remain 2%, lower than a year earlier but are slightly increased compared to the previous quarter.
“The new government backed 95% mortgage scheme should start to boost these figures as it helps buyers with smaller deposits get on the housing ladder.”
