First time buyers squeezed as deposit costs rise

HEADLINES

  • May sees 22,200 first-time buyer (FTB) transactions as sales drop 18.1% compared to 27,100 last year
  • This makes May 2015 the lowest May for first-time buyer transactions in three years
  • Average first-time buyer deposit climbs 4.2% year-on-year to £25,134 as purchase prices rise
  • Comes despite rock bottom average mortgage rates and repayments falling as a proportion of income

This year (2015) witnessed the lowest May for first-time buyer completions in three years as the election temporarily stalled the market and deposits costs climbed, according to the latest First-Time Buyer Tracker from Your Move and Reeds Rains.

The number of first-time buyers completing property transactions in May has fallen by over 18% compared to the same time last year. There were 22,000 transactions in May 2015, 18.1% lower than May 2014’s figure of 27,100.

May’s figure is 0.9% lower than April’s figure of 22,400 first-time buyer completions. May did see significantly more sales than three months ago (+16.2%), but February’s figure of 19,100 represents a seasonally quiet time of year. 

On top of the uncertainty surrounding the election, first-time buyers are facing the need for growing deposits both in real and relative terms. As of May, the average deposit for a first-time buyer stands at £25,134, up 1.7% on the previous month and 4.2% on a year ago. Moreover, the average deposit as a proportion of income is on the rise for the first time in four months – up one percentage point month-on-month to 64.4% of average income in May.

Adrian Gill, director of estate agents Your Move and Reeds Rains, comments: “Despite record-low mortgage rates, a growing economy and the start of significant wage growth, the uncertainty surrounding the election seems to have triumphed, albeit momentarily. Many pundits predicted a hung parliament, and this political confusion seems to have caused many would-be first-time buyers to keep their powder dry in the run-up to May – until it became clear what the government was and what its housing policies were going to be.

“A second and more permanent root to the disappointing first-time buyer figures is the challenge of cultivating a deposit. Many first-time buyers are still on tight monthly incomes, struggling to save while savings rates stay so low. Meanwhile, deposits are rising primarily as property prices continue their seemingly unstoppable upwards march. This is wholly due to a lack of housing supply versus a stack of housing demand. If we want to see property prices stabilise and deposits fall as proportions of income, the Government must address the housing supply problem, for which there is only one solution: build more homes.”

FIRST TIME BUYER AFFORDABILITY

 

HOUSE PRICES AND FIRST-TIME BUYERS

New buyers paid more on average for their first home in May than in April, with the average first-time property value up 0.3% on a monthly basis to £153,348. This figure also represents an increase of 3.9% on three months ago and 6.7% on a year ago. Furthermore, this month’s average house price represents the highest average in 2015 so far.

The news comes alongside a 3.46% average mortgage rate for first-time buyers in May – the lowest in over five years – and an increasingly high average loan to value (LTV) ratio for March’s first-time buyers of 83.6% – up 0.4 percentage points on a year ago and 1.1 percentage points on three months ago.

Adrian Gill continues: “While buyers may grumble, rising property prices are a positive sign. They demonstrate that the continuing fall in the average mortgage rate combined with the brightening economic outlook has left plenty of demand in the first-time buyer housing market. This is despite May’s threat of a highly uncertain election outcome. Schemes such as the Help to Buy ISA have encouraged all sorts of buyers to overlook temporary political uncertainties and save up to make the dream of home-owning a reality.”

 

REGIONAL DIFFERENCES

London is the most expensive place for first-time buyers, with average house prices standing at £303,574 in the three months to May 2015. The second-most expensive place for first-time buyers was the South East, where the average house price over the same period was £201,292. Nationally, the average price for a first-time home stood at £155,356 in the three months to May 2015. The North East and Northern Ireland are the least expensive regions for first-time buyer properties, with average prices standing at £112,388 and £107,906 respectively.

On average, Londoners put down a deposit of £69,040 in the three months to May 2015 – more than five times the size of the average first-time buyer deposit in the North East (£13,283). Despite having the second-highest average purchase price, the South East only possessed the fifth-largest average deposit cost. The East of England is the region with the second-largest deposit, coming in at an average of £49,135 in the three months to May 2015. First-time buyers in Wales need the third-largest deposit (£27,668), despite being one of the less expensive areas in the country for first-time buyers.

Adrian Gill concludes: “Almost universal rises in house prices illustrate that the desire amongst Britons to become home-owning is returning to pre-financial crisis levels. What’s most interesting, however, are the high deposit expenses in areas outside London. Surging deposits in the Wales and, in particular, the East of England are potential indicators that first-time buyers have a strong appetite to buy in the regions as well as the capital, moving to places where the cost of property and living is lower. This is creating property hotspots outside London where people are willing to put down higher deposits to own property. The optimistic mindset of the housing market is spreading beyond London and across the UK.”

HEAT MAP OF FIRST TIME BUYER PURCHASE PRICES

(3 MONTHS TO MAY 2015)*

*This is the total number of FTBs in the three months to May 2015. Based on CML regional data (released 25th February 2015) on the number of FTBs in Q4 2014 – grossed up to reflect growth in FTBs recorded by LSL Property Services between Q4 2014 and three months to May 2015.

Courtesy of LSL.

 

METHODOLOGY

LSL uses the extensive monthly data from registered first-time buyers in its estate agency brands Your Move and Reeds Rains to update the CML’s first-time buyer data before the CML’s RMS data is published. The term ‘first-time buyer’ is here denoted by the purpose of a buyer’s registration, rather than their LTV. LSL LTV data has been applied to CML price purchase data to calculate deposit and affordability information. Sentiment and salary data are derived from a survey conducted by LSL. The figures are not mix or seasonally adjusted, and are subject to revision as more data becomes available.

This First Time Buyer Tracker has been prepared by Instinctif Partners for LSL Property Services.  It has been compiled using information extracted from LSL’s management information.  The copyright and all other intellectual property rights in the First Time Buyer Tracker belong to LSL.  Reproduction in whole or part is not permitted unless an acknowledgement to LSL as the source is included.  No modification is permitted without LSL’s prior written consent.

Whilst care is taken in the compilation of the First Time Buyer Tracker, no representation or assurances are made as to its accuracy or completeness. LSL reserves the right to vary the methodology and to edit or discontinue the First Time Buyer Tracker in whole or in part at any time.

Stuart Beaty

Celsium, Birmingham, UK