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House market Analysis: What's the current outlook for first-time buyers?

  1. 17 July 2017
  2. By Rob Houghton

We have a look at what the housing market looks like for first time buyers and what initiatives are in place to help them take their first step onto the ladder. 

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The plight of first-time buyers has received plenty of media coverage and column inches in recent times, with many finding it difficult to take their first steps on the ladder. For those that do, there is often a reliance on the Bank of Mum and Dad – now equivalent to the UK’s ninth largest mortgage lender – or housing schemes such as Help to Buy, Shared Ownership and Right to Buy. 

Two of the main reasons why first-time buyers struggle to secure a home are high house prices and high deposits. Very often, first-time buyers will need a 10%-15% deposit on a home. Even if a home is at the lower end of the market, raising a deposit – particularly at a time when interest rates are at record lows and the cost of living is increasing – is no easy task. 

While 5% deposit mortgages are becoming more popular again, with some high-street lenders now offering such packages, high house prices across the country – especially in London and the South East, where first-time buyers are at their most active – are ensuring that significant challenges are thrown in the way of this demographic. 

How much does a typical first-time buyer spend on a home?

The average UK house price is currently around the £230,000 mark, but in London and the South East it’s much higher. While the average price of a first-time buyer home is lower than the average UK price in England and Wales, in London the cost of a first-time buyer property is still considerable, standing above £410,000. Even a 5% deposit on such a home would be above £20,000, a sum that would take first-time buyers years to save. 

In England and Wales, the price of a first-time buyer home has increased by 4.7% since March 2016, while in London the price has increased by 1.5%. According to a recent report by Rightmove, the average price for a first-time buyer home is £193,000 (normally for a two bedroom house, flat, or smaller).

What is the average deposit for a first-time buyer?

According to Halifax’s First-Time Buyer Review, getting on the property ladder for the first time is also becoming much harder, with the average deposit required by first-time buyers rising to more than £32,000 in 2016.

In the capital, the report found, the situation is even starker, with the required deposit for those making their first purchase hitting an average of £100,000 last year. This has helped to price many first-time buyers out of the market completely. 

What’s more, the last 10 years has seen the average first-time buyer deposit double, while in London house prices have quadrupled. 

Is the first-time buyer market still active?

Despite the above, the number of first-time buyers is on the up, increasing by 7% to reach 335,750 in 2016. This, in fact, is the highest number since the global financial crisis took hold in 2007. 

Schemes such as the Help to Buy ISA and tax changes in the private rented sector – including an additional 3% stamp duty surcharge on second homes and restrictions on mortgage interest tax relief – have played a part in freeing up stock for first-time buyers and making a house purchase more achievable.  

The booming nature of the first-time buyer marketplace was further shown in Halifax’s figures, with just under half of all house purchases with a mortgage made by first-time buyers in 2016, at an average price of £207,693. Some 60% of these buyers said they were opting for mortgage terms of more than 25 years to improve affordability. 

Why are there so many first-time property purchasers?

The first-time buyer boom is down to a number of factors – including higher employment rates, government schemes, increasing financial support from parents or loved ones and historically low mortgage rates – with the number of buyers from this demographic surpassing 300,000 for the third year in a row.

However, there are concerns that low-earning or average-earning households aren’t seeing the benefits of schemes like Help to Buy, with a recent report by the Social Mobility Commission and the London School of Economics suggesting low-cost home ownership schemes are beyond the reach of families on average earnings and are mostly being used by people earning more than one and a half times ‘the national working-age median income’. 

The average income for Help to Buy buyers, the research revealed, was £41,323, which isn’t far off the income of the average first-time buyer (£47,528). Most people, however – in particular younger people – don’t earn a salary that high. In fact, fewer than half of all working-age households have incomes of over £30,000, begging the question of whether Help to Buy is really helping those it is supposed to be aimed at. 

Are average deposits still rising?

It differs across the country, with the lowest deposits to be found in Wales and Northern Ireland, while Scotland, the north of England and the Midlands also prove more affordable. In many UK regions, the average deposit for a first-time buyer home is above £20,000, while in the South West and East Anglia it’s above £30,000, with higher percentages of the purchase price needed. 

Homes are at their most unaffordable, as you might expect, in the South East and London. In the South East, for example, the average deposit on a first-time buyer home is £50,144, an 18% stake of the overall value. In London, the average deposit soars above £100,000 (£106,577, almost as much as the overall first-time buyer asking price in Northern Ireland), with buyers needing a 26% stake. 

Elsewhere, research by conveyancing firm My Home Move has revealed that the average deposit paid for a property in England and Wales has risen by £6,000 year-on year and now stands at £59,633. Deposits were at their most expensive in London and the South East and at their cheapest in the North East and North West. 

What initiatives are there to help first-time buyers?

With increased deposits across the country, many first-time buyers are turning to government schemes to aid them with their house purchases. We’ve talked plenty about the various Help to Buy initiatives (which includes the Help to Buy ISA, Shared Ownership and the Help to Buy equity scheme), but there is also the flagship Starter Homes scheme which aims to help first-time buyers to purchase a new-build home with a 20% discount (up to a value of £250,000 outside London and £450,000 inside London). However, as things stand, the scheme hasn’t officially started yet – although planning is apparently well underway – and aspiring homeowners can register their interest online.

The Lifetime ISA 

There’s also the Lifetime ISA, which aims to help first-time buyers either buy a home or save towards their retirement. However, as we outlined in a previous blog this scheme – one of the final acts carried out by George Osborne before he was sacked as Chancellor – has been struggling to get off the ground since it launched in April, with most major banks and lenders rejecting it. Those who are offering it are mostly smaller lenders such as Skipton Building Society or stocks and shares providers such as Nutmeg and Hargreaves Lansdown. 

What schemes are most popular with prospective buyers?

We have a few of our own stats on which schemes first-time buyers are most reliant upon. In June 2016, 14.2% of first-time buyers who used reallymoving were turning to the Right to Buy scheme (controversially introduced by Margaret Thatcher in the 1980s and a bone of contention ever since) and 3.9% were opting for Shared Ownership, where buyers part-own and part-rent a property. 

By June 2017, the number of people using the Right to Buy scheme (despite government plans to expand it) had fallen to 10.2%, while the number of first-time buyers opting for Shared Ownership had increased to 4.5%. The Help to Buy ISA, meanwhile, which was first launched in December 2015, has proved very popular among first-time buyers, with 30.5% turning to this scheme to help with their house purchase. 

So, while the number of first-time buyers is on the up and the number of affordable housing schemes aiming to help this demographic get on the ladder is wider than ever, there are still considerable challenges faced by first-time buyers, not least high house prices and high deposits. 

There are also ongoing concerns about affordability, the narrow target audience of schemes such as Help to Buy and an over-reliance on the Bank of Mum and Dad to help bankroll, or help towards, house purchases. 

More still needs to be done to help first-time buyers, although there are signs the situation is improving.   

 

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