First-time home purchases surge to post-crisis high

http://www.theguardian.com/money/2014/dec/26/first-home-buyers-post-crisis-high-november-sales

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Property purchases by first-time buyers in November reached their highest level since the financial crisis as falling mortgage rates and rising prices encouraged more people on to the property ladder.

Figures from the property firm LSL show that across the UK 34,300 first-time buyers completed on sales during the month, the highest number since August 2007, when the housing market was reaching its last peak.

The increase was driven by a fall in the cost of mortgages to a four-year low, according to the firm, which owns estate agency brands Your Move and Reeds Rains and uses data from its sales and from the Council of Mortgage Lenders to compile its figures.

Transactions by new entrants in the market were up by 14.7% on October’s figure and by 29.9% year on year, while at £151,020 the average purchase price was up 3.9% on the same month last year and 0.8% higher than in October. LSL said first-time buyers during the month typically put down a 17% deposit on their purchase, worth £25,991.

First-time buyers were hit hard by the credit crunch that took hold in 2008 and resulted in lenders pulling mortgages for borrowers with small deposits and imposing stricter lending policies that shut some would-be buyers out of the market. Since then, government stimulus in the shape of the Funding for Lending Scheme, which channelled cheaper money through banks, and the Help to Buy mortgage guarantee scheme has encouraged banks and building societies to increase their maximum loan-to-value (LTV) ratios.

Although there has been no return to the 125% mortgages on offer before the crash, rates have been falling even on mortgages based on smaller deposits. LSL said that even though property prices had risen over the past year, monthly repayments had not. In November 2013, first-time buyers typically paid 20.9% of their monthly income towards their home loan, against 20.2% a year later.

Stamp duty changes introduced in December’s autumn statement have further reduced the cost of buying in some parts of the country, although this saving is made upfront. LSL said that under the new regime, first-time buyers in London would save an average of £4,200 on the typical £290,158 they were paying for a home. However in many areas outside southern England, first homes were typically changing hands for prices below the first stamp duty threshold of £125,000.

Adrian Gill, director of Your Move and Reeds Rains, said: “The government unveiled a revised stamp duty structure in the autumn statement, and this will further nurture demand at the lower end of the market.

“But while it will have a big impact in the capital, the changes will be less noticeable elsewhere – and in some areas where the average price of a first-time buyer property is still beneath the bottom tier, they may be negligible. Still, the media buzz surrounding the announcement has pepped up interest, regardless.”

David Hollingworth, of the mortgage brokers London & Country, said a lot had been happening in the first-time buyer market this year.

“You will still pay more if you have a small deposit but there is a lot more choice and innovation.”

The Help to Buy mortgage guarantee scheme, which many lenders joined in January this year, had helped push down interest rates on 95% loans. The best-buy mortgage was a two-year fixed-rate at 4.64%, while buyers able to raise a 10% deposit could get interest rates below 3%. This time last year the cheapest two-year deal on a 90% mortgage was 3.49%.

“This encourages more people to decide that actually now is the time to buy, he said. “Prices have also started to go up, so if you’re confident you can afford it, and you think that houses are going to continue to rise, it may look like a good time to buy.”

LSL’s figures show the market was busiest in London and the south-east of England in the three months to the end of November, with 14,100 and 18,800 first-time buyer completions respectively out of the UK total of 89,100. In the north-west, 8,500 new buyers bought homes. In the north-east the figure was 3,500.