First-time buyers up 42 per cent but deposit raising still an issue

The level of first-time buyers (FTBs) in the UK was up 42 per cent in the year to February 2014, as prospective homeowners took advantage of increased mortgage availability and in anticipation of future price rises.

The latest First Time Buyer Opinion Barometer from LSL Property Services found that there were 22,400 FTB transactions in February, up from 15,800 in the same month last year and an increase of 2.8 per cent from the 21,800 in January 2014.

This February, 96 per cent of tenants registered with Your Move and Reeds Rains wanted to become homeowners, up from 92 per cent in December 2013. More first-time buyers are moving as they anticipate prices rising in the next twelve months.

Eight in ten (81 per cent) first-time buyers expect prices to rise in the next year, with 48 per cent predicting rises of up to 5 per cent, a quarter (24 per cent) expecting rises of 5 – 10 per cent and a further 9 per cent expecting prices to rise by more than 10 per cent.  While 81 per cent of first time buyers expect prices to rise, only 14 per cent predict house prices will remain the same over the next year, and just 5 per cent 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 per cent 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 per cent) now think they will never be able to afford to buy, lower than in December (12 per cent) and significantly lower than in December 2012 when 20 per cent of tenants thought they’d never be able to buy – the highest in the last eighteen months.

Roadblocks

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 per cent) 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 per cent), followed by concerns over transactional costs like stamp duty and legal fees (17 per cent) and concerns that an interest rate rise will push up repayments (13 per cent) Additional worries included the possibilities of future unemployment (5 per cent), falling house prices (5 per cent) and decreasing income (4 per cent).

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

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

Regional snapshots

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

Two-bed flats were the most popular choice for first-time buyers in the capital –  with over a third (35 per cent) 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 per cent) said they were considering buying a newly constructed property, compared to just a quarter (25 per cent) 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.