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acceptable set-backs for owning a first home for 77% and 76% of new buyers respectively, and 71% said the same of an out-of-date bathroom.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.

Fastest UK rent rises on record

• Annual rent rises hit 5.6% across England and Wales – the fastest increase since records began in 2009

• Rents are now growing faster than house prices on an annual basis, for the first time since July 2013

• Rent rises decouple from the rate of inflation, with annual CPI standing at 0% in the same month of June

• Landlords targeted in Summer Budget could pass along the cost, causing rents to accelerate further

• Proportion of rent in arrears jumps to 8.7%, up from 7.6% in May 2015 and 7.8% in June last year

The average cost of renting a residential property in England and Wales has accelerated, to rise more quickly in June than in any month previously on record, according to the latest Buy-to-Let Index from Your Move and Reeds Rains.

Rents across England and Wales reached a new record high at £789 in June, standing 1.4% higher than the £778 recorded in May and up 5.6% on an annual basis since June 2014.

This is despite consumer price inflation falling to 0.0% in June, and underscores a new trend since the beginning of 2015 by which rents have risen out of line with the rate of inflation.

This is also the first month since July 2013 where rents are rising more quickly than house prices for comparable properties, with this annual rate of house price growth standing at 4.5% over the twelve months ending June 2015.

Adrian Gill, director of estate agents Reeds Rains and Your Move, comments: “The pedal is pressed to the metal in the rental market.  Not only have rents hit a new all-time record high – but we have never seen them rise so quickly.

“Growing wage packets and a strengthening economy mean that a greater number of tenants are able to afford higher rents. With such an overall shortage of housing in the UK, rental costs are primarily driven by the amount tenants are capable of paying. Rents have also decoupled from inflation. While record low inflation fueled by falling oil prices might bring clothes or food within the range of tenants’ purchasing power, it doesn’t have much of an effect on the property market in the short term.

“There may be new factors on the horizon too.  In the wake of the Summer Budget’s reduced assistance for landlords, we might see many aim to pass additional costs onto their tenants. If so, rents would receive yet another acceleration.

“In all this, we mustn’t lose sight of the driving force behind rent increases – the mismatch of supply and demand. Expanding our housing stock needs to become a national priority. If anything, competition for homes is only going to get more intense over time. The fierceness of housing competition needs to be met with an equal dedication to homebuilding.”

 

Regional rents: Accelerating East

Annual rent rises in the East have accelerated at a record pace to a new record high, increasing 13.8% over the twelve months to June 2015 to stand at £839. This is the fifteenth consecutive month of accelerating rent rises seen in the region and goes alongside rapid growth in purchase prices in the East.

London showed the next strongest year-on-year growth in rents, with a 9.6% increase since June 2014, pulling rents in the capital up to an average of £1,241, a new record high. In third place but some distance behind, rental costs increased 2.2% year-on-year in the South East to stand at £778 in June.

Due to a mild slowdown, rents in the South East are still short of record levels. By contrast Yorkshire & the Humber is the third region to have witnessed a new record high in June, with an average monthly rent of £550.

On a monthly basis, London led the way with a 2.8% increase just between May and June, closely followed by the East with 2.4% month-on-month growth and the East Midlands at 1.5%. Over the same monthly period, rents fell in the South East (-0.2%) and the South West (-1.3%).

Adrian Gill explains: “Annual rent rises in the East are nearly half as fast again as in the capital. It seems like we might have a new hotspot on our hands.

“At the heart of the Eastern region, strong property price growth and some of the best job prospects in the UK combine to make Cambridge fertile ground for rental growth. But one city alone can’t account for the record rate of growth experienced across the whole Eastern region. We also have to take into account the wealth of commuter areas for the capital based there. It may be that we’re seeing an unusually high number of Londoners making the move out to Essex and Hertfordshire, while keeping their London salaries, driving up demand for higher end rental property.

“However, aside from any particular hotspot one trend is clear – nine out of ten regions have seen faster annual growth last month than the month before. Across England and Wales rents are going one way for the time being.”

 

Rental yields steady but total returns cooling

The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) stayed steady in June at 5.1%, the same as the month before as well as June last year.

Total annual returns fell again in June, but only slightly. On average, landlords in England and Wales have seen returns of 9.2% over the year ending June 2015 – down slightly from 9.3% in May and 11.9% in the year ending June 2014.

This means that the average landlord in England and Wales has seen a return of £16,216 in absolute terms, before deductions such as mortgage payments and maintenance. Of this, the average capital gain contributed £7,946 while rental income made up £8,270 over the twelve months to June.

Adrian Gill continues: “Resilient yields backed up by rapid rent rises are a boon for landlords in otherwise trying times. Though the Summer Budget threatens to eat into their profits, record rents should provide buy-to-let investors with some comfort: the fundamentals still make being a landlord an attractive proposal.

“The fact that rents have risen faster than house prices should reinforce that the primary source of a buy-to-let investor’s income is rent rather than capital gains – house price growth is a welcome bonus, but not the be-all and end-all of rental property investment. Meanwhile, with mortgage rates so low, there’s rarely been a better time to invest in new property.”

Rent arrears higher in June

Tenant arrears made up 8.7% of all rent payable in June 2015, up from to 7.6% of all rent in May, and 7.8% in June 2014.

Adrian Gill concludes: “While any uptick in the proportion of rent in arrears is a step down the wrong path, this should be seen in context. The overriding trend is still towards lower proportions of rent in arrears – far lower than was seen during the financial crisis.

“A certain degree of variation is to be expected – tenants aren’t robots, and bad months happen. The important thing is to ensure that tenants are able to avoid these situations becoming more serious if arrears build up.

“In the long term, if we want more encouraging trends to continue, there needs to be a greater emphasis on what can be done to help tenants and landlords alike. It’s one thing to slap landlords with a tax and call it a done deal, and quite another to address the issue of housing in a consistent and sustainable way. The cornerstone of progress, as ever, is housebuilding.”

Courtesy of LSL.

METHODOLOGY

The index is based on analysis of approximately 20,000 properties across England and Wales. Rental values refer to the actual values achieved for each property when let. Yield figures are unadjusted, and do not take account of void periods or arrears. Annual returns are based on annual rental property price inflation and void-adjusted yield at the point of purchase. These figures are subject to revision as more data becomes available.

This Buy-to-Let Index has been prepared by The Wriglesworth Consultancy for Your Move and Reeds Rains, part of 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 Buy-to-Let Index 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 Buy-to-Let Index, no representation or assurances are made as to its accuracy or completeness. Your Move, Reeds Rains and LSL reserve the right to vary the methodology and to edit or discontinue the Buy-to-Let Index 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.