UK rents 'most expensive in Europe' at time of cheap mortgages

UK rental costs are the highest in Europe but homeowners are benefiting from cheap mortgages, data suggests.

Tenants typically spend 39.1% of their income on rent compared with a European average of 28%, figures from the National Housing Federation suggest.

The federation, which represents housing associations, also said that renters were less secure in their homes, owing to short tenancies.

However, homeowners are benefitting from competition between lenders.

The British Bankers' Association (BBA) said that there was "fierce competition" among lenders which meant that "great mortgage deals" were available.

Low interest rates, a trend of owners sticking with long-term tracker deals, and a lack of properties on the market are all contributing to lenders lowering the cost of home loans to try to tempt owners to their mortgage products.

The contrasting fortunes of renters and owners will be a concern for those who see little prospect of getting on the housing ladder in the short term.

The NHF said that private tenants made up about 17% of all UK residents but were facing high costs. Their counterparts in Holland and Germany, for example, had private rents that were about 50% cheaper than in the UK.

David Orr, chief executive of the NHF, said: "How can we expect people to raise families, start businesses or save for their first home if they don't even know where they will be able to afford to live?

"High rents are just one symptom of the housing crisis, we are simply not building enough due to under investment and problems with the land market."

There was also a culture of longer-term residency in properties on the continent, unlike in the UK where people moved more often owing to short tenancy agreements, the federation added.

New deals

Activity among owner-occupiers has been picking up in recent weeks, according to the BBA, which represents the major banks.

Lenders have been trying to encourage owners to switch to fixed-rate mortgage deals.

"More of the banks and building societies are actively targeting their existing customers and offering them new deals," said Aaron Strutt, of mortgage brokers Trinity Financial.

"Rates are so cheap at the moment that there are often savings to be made even if you are on one of the super-low tracker mortgages."

Even if a mortgage is secured, the chance of people selling in one part of the country and buying in another could be difficult.

New figures from the Office for National Statistics (ONS) show the huge difference in average house prices in neighbourhoods of England and Wales.

The area with the largest median house price last year was Kensington and Chelsea, in London, at £1.19m. The lowest median average property price was in Blaenau Gwent in Wales at £75,000.

China housing market shows signs of recovery

As Chinese policymakers struggle to arrest a slowdown in growth, July home price data looks likely to confirm the housing market as a rare counterpoint to a growing list of grim economic indicators.

Property sales bottomed out in January-June after declining for more than a year, propped up by a barrage of government support measures since last September, including a series of interest rate cuts and lower down-payment requirements.

There are indications that the pace of recovery may be quickening in the housing market, which accounts for about 15 percent of the economy.

On Sunday, the country's biggest property developer, China Vanke Co Ltd , said its half-year core profit climbed 5.5 percent, and trumpeted the "emergence and growth of massive new property demand".

"It'll take time, but it's confirmed that a recovery is ongoing," Vanke's president Yu Liang told reporters on Monday.

Data from researchers at China Real Estate Index System show Vanke is backing that prognosis with cash, spending 30 percent more on land purchases in January-July than in the same year-ago period.

There have been precious few triggers for investment in recent economic data releases.

Exports have tumbled, investment growth has hit repeated lows and the stock market crashed 30 percent in a matter of weeks, keeping policymakers busy with an unprecedented slew of support measures, including a currency devaluation and repeated attempts to increase lending.

Even if China hits its official target this year, economic growth would hit a 25-year low of 7 percent.

Big Cities Lead the Way

In the housing market, which hit the skids after previous heavy-handed efforts to cool a speculative bubble, the support measures appear to be bearing fruit.

"It's the policy that makes it possible to buy my second apartment. Without lower down-payments, I couldn't make the decision this time," said 33-year-old tourism worker Lilian Liu, who bought a second home in the eastern city of Hangzhou last month, helped by money she made in the stock market before the crash.

Though overall real estate investment growth continued to slow in January-July, property sales and housing investment improved, which Li Jiao, senior statistician at the National Bureau of Statistics, said would fuel growth in total property investment in the coming months.

Prices in first-tier cities such as Beijing, Shanghai and Shenzhen have been leading the recovery.

"I've been watching the housing market for several months," said a Beijing lawyer who gave his surname as Wang. "Upward is surely the direction of home prices in Beijing. A recent recovery in transactions helped me sell my first flat quickly and got the money to buy another one," he said.

Source: Reuters 18th August (Reporting by Xiaoyi Shao and Kevin Yao; Writing by Will Waterman; Editing by Ian Geoghegan)

First-time buyers settle for second-best in quest to buy their own home

• First-time buyers compromising on quality: a fifth (20%) are prepared to purchase a property with no electricity; 19% willing to forgo plumbing & central heating

• In the quest to save for a home, first-time buyers are making serious cutbacks: a sixth (17%) would sacrifice their pension contributions, and 70% would scrap buying a new car or a holiday

• Despite these savings & slipping standards, less than a tenth of all tenants (8%) expect to buy by the year’s end – half that of a year ago

• Completed monthly transactions fall 27% year-on-year in June, as the political after-shocks of the General Election continue to unsettle the housing market

Despite making large compromises on quality, and serious cutbacks to save for a home, the proportion of tenants expecting to buy by the end of the year has halved compared to a year ago to less than 10%, according to the latest First Time Buyer Opinion Barometer from Your Move and Reeds Rains.

In June, only 8% expected to buy before the end of 2015 – down from the 16% who said, in June 2014, that they expected to buy before the end of 2014.

The survey also revealed that almost one-fifth of first-time buyers are willing to go without basic utilities in order to purchase a home. When asked what features they would forgo in their first home, 20% of first-time buyers responded that they were prepared to go without electricity, while 19% were willing to put up with no working plumbing and central heating.

The proportion of buyers willing to compromise increases dramatically when questioned about less essential household features. Dated décor and a sub-par kitchen were acceptable set-backs for owning a first home for 77% and 76% of new buyers respectively, and 71% said the same of an out-of-date bathroom. Only 9% of respondents claimed they were unwilling to make any significant compromise when buying their first home – below the proportion of first-time buyers willing to accept a property with dry rot (12%) or one with a leaking roof (14%). 

The willingness of first-time buyers to compromise on the quality of their new home is confirmed when they were asked what condition of property they were looking to buy. The largest proportion – 45% – conceded that they would accept a property of any condition, so long as it was within their budget, despite only 15% of respondents claiming that they were actively seeking to buy a home which required renovation.

Home-ownership still remains the aim for most people in the UK, with 91% of tenants aspiring to be home-owning at some point in their lives.

Adrian Gill, director of estate agents Your Move and Reeds Rains, comments: "As demand in the property market remains strong, first-time buyers are willing to accept a home in less-than-perfect condition.

"While the stats seem alarming at first glance, they’re a good sign for the housing market overall. The figures show that most would-be first-time buyers haven’t given up on the dream of property-ownership. Instead, they are sensibly adjusting their expectations and preparing themselves for some of the short-comings that may be present in a first home. Indeed, it may even be the case that some first-time buyers actively select properties with faded décor or faulty kitchens, judging that the reduction they can secure on the asking price is greater than the cost of any required renovation work.  

"First-time buyers are also still taking advantage of Government-backed schemes, such as Help to Buy, while they last. Home-buying incentives are not going to be around forever – especially now the property market is beginning to stand on its own two feet. First-time buyers are more inclined to purchase a home now with support – even if it doesn’t match exactly to their specifications – than hold out for a more ideal property and risk the incentives expiring."

THE LIFESTYLE COST OF HOME-OWNERSHIP

Large numbers of first-time buyers are willing to slash their outgoings to save up for a home. When asked which of their expenses they would be cut in aide of becoming a home-owner, 69% replied that they would give up purchasing a new car, while 67% stated they would curtail their holiday expenditure.

Many first-time buyers were also ready to slash more day-to-day expenses. Almost two-thirds (61%) opted to slash entertainment expenses such as eating out and 56% went so far as to save on consumer purchases such as clothes.

Some were even prepared to put at risk their financial security in retirement, with 17% of respondents claiming they would sacrifice their pension contributions in aide of owning their own home. Only 12% were unwilling to make any form of accommodation to their lifestyle.

The news comes alongside the survey’s findings that immediate cash-concerns are increasingly the biggest factors stopping tenants stepping onto the property ladder. In June 2015, 68% of tenants claimed that they were currently unable to buy a home because they lacked the required funds for a deposit, whereas just 46% gave the same reason in June last year. Not having enough money to make monthly mortgage payments was cited as an impediment to home-owning by a quarter (25%) of respondents this month, compared to only 15% who saw it as a barrier during the same month last year.

Meanwhile, 16% said that concerns about an interest rate hike was stopping them buying their first home – up from 10% in June 2015 and a figure which has been steadily increasing since the turn of the year. The figure’s growth correlates with increasingly strong signals from the Bank of England that an interest rate hike is likely to occur in the near future.

Adrian Gill, director of estate agents Your Move and Reeds Rains, explains: "First-time buyers are going that extra length to get the capital together to step foot on the housing ladder.

"At a time when wage increases are only just beginning to outstrip inflation and the costs of moving remain stubbornly high, first-time buyers are sadly faced with little option than to make compromises in their lifestyle in order to get the keys to their first home. But it’s not all doom and gloom. The Chancellor’s announcement in his Summer Budget of a National Living Wage is an indicator that the UK’s pay prospects are expected to pick up over the next five years. This should help ease some of the expenditure cuts first-time buyers are having to make. The Budget also contained proposals to use under-utilised public land to build 100,000 new homes – if implemented this policy should take some of the pressure off Britain’s inadequate housing stock. The construction of more affordable housing would leave first-time buyers facing less of a financial hurdle in terms of mortgage and deposit payments."

 

JUNE SEES 7% MONTHLY FALL IN FIRST-TIME BUYER TRANSACTIONS

There were 21,100 first-time buyer completions in June 2015, 7% lower than 22,700 in May and 27.2% lower than a year ago.

Meanwhile, the average purchase price of first-time buyer properties was £154,041 in June, a figure unchanged compared to a year ago and down 0.9% on a three-month basis. First-time buyer deposits averaged £25,926 in June, 1% less than a year before, but 2.8% higher than three months ago and 2.1% higher than last month’s average.

However, the latest Mortgage Monitor from e.surv revealed that the total number of high LTV house purchase approvals has rocketed 18% between May and June of this year and has grown 6% compared to June 2014. This suggests that the number of first-time buyer completions should return to growth over the summer months.

Adrian Gill concludes: "First-time buyer numbers have had a disappointing month, with little sign of the anticipated post-election bounce. Many would-be first-time buyers deferred their decision until after the Chancellor’s Summer Budget, one which essentially laid out the Government’s economic and housing policy for the next few years. However, deposit costs continue to rise – while this may be frustrating for those diligently saving to put a foot on the ladder, it is a positive reflection on the growth of wages and home values. More positively still, the surge in high LTV house purchase approvals should mean a rise in completions in the coming months. It’s a matter of waiting for the emerging signs of growth to filter through the property chain."

REGIONAL DIFFERENCES

The average purchase price paid by first-time buyers in London was £277,871 in Q2 2015, while Northern Ireland was the cheapest region for first-time buyers at an average of £105,405.

* This is the total number of FTBs in Q2 2015. Based on CML regional data (released 20th July 2015) on the number of FTBs in Q1 – grossed up to reflect growth in FTBs recorded by Your Move and Reeds Rains between Q1 2015 and Q2 2015.

Examples of First-Time Buyer Properties**

** Properties on the market with either Reeds Rains or Your Move estate agents at the time of going to press.

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 Opinion Barometer 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 Opinion Barometer 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 Opinion Barometer, 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 Opinion Barometer in whole or in part at any time.

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.