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More first-time buyers getting on the ladder

More first-time buyers getting on the ladder

Category: Mortgages

Updated: 28/03/2014
First Published: 28/03/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Most people dream of owning their own home one day, and happily that dream seems to be coming true for an increasing number of them. Research from LSL Property Services has revealed that the number of first-time buyers (FTBs) has jumped by 42% in the last year alone, and that's an awful lot of new homeowners enjoying their first ever property.

According to the latest LSL First Time Buyer Opinion Barometer, a total of 22,400 FTB property transactions took place last month, compared to just 15,800 in February 2013. The average FTB purchase price has increased too, this time by 12% annually to reach £148,782, but despite this the average deposit has actually fallen to a 16-month low of £25,773 – 14.1% down on the previous year.

So, what's behind this increased level of activity in the market? Well, as might be expected, it's thought to largely be the result of the Government's Help to Buy scheme.

The scheme was introduced in April last year with the first phase offering an equity loan of up to 20% of the property price, provided that the buyer put down a deposit of at least 5%. It was only available to new homes and was designed to boost levels of house building and get more FTBs on the ladder, and unsurprisingly, they snapped it up.

The second phase, the mortgage guarantee element, boosted availability of 95% loan-to-value (LTV) mortgages which fuelled the level of FTB activity even more, with people clamouring to take advantage of the new range of mortgages available to them. Arguably, it's the scheme that's led to the lower average deposit too, with buyers finding it much easier to get on the ladder with a minimal outlay.

"Help to Buy has catalysed the recovery of the first-time buyer market, by encouraging more lending to borrowers with smaller deposits," said David Brown of LSL. "The extension of the scheme announced in the Budget will see that support carried through until the end of the decade… offering first-time buyers a leg-up onto the housing ladder."

However, rising house prices are also thought to another factor behind the increasing number of FTBs, with them keen to get on the ladder before prices become too prohibitive. They're choosing to make the jump now in anticipation of future rises, with 81% of first-time buyers surveyed expecting prices to increase over the next 12 months – compared to just 5% that are predicting a fall.

"The reason first-time buyers are taking advantage of Help to Buy in such numbers is that they expect prices to keep rising. That's pushing up demand in the short term, which is supporting prices in the long term," added Mr Brown.

Unfortunately saving for a deposit is still the biggest barrier to homeownership for 56% of those surveyed, but despite that – and the onslaught of ever-rising prices – it seems that prospective homeowners are actually becoming increasingly optimistic about their chances of being able to buy. The survey found that just 10% of tenants surveyed think they'll never be able to afford to buy their own home, a significant drop from December 2012 when a record 20% had given up hope of ever buying, and a wonderfully confident 20% expect to be able to buy in the next year.

It's a great time to get on the housing ladder too, particularly with mortgage rates still enjoying their run of historically low levels. If you're one of the lucky 20% hoping to get on the ladder in the next year, why not start doing some research?

What Next?

Check out our pick of the best first-time buyer mortgage rates to start planning your budget, and see if your ownership dream could become a reality.

Use our Mortgage Calculator to compare the market for the best mortgage rates

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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