Owning a home is the dream of many, and over the last year there've been various incentives aimed at getting people on the ladder. Well, they seem to be working as a lot more are now able to realise their dream of homeownership, with figures from LSL Property Services revealing that the number of first-time buyers entering the market soared to a 6½-year high in March.
In total, 31,400 first-time buyer (FTB) sales took place in the month, up 41.4% on February's total of 22,200 and an increase of 60.2% year-on-year, making it the highest monthly figure since August 2007 – meaning FTB sales are finally heading back to pre-recession territory.
Affordability seems to be improving too, which could go some way to explaining the increased number of FTBs. The average deposit paid by a first-time buyer fell to £23,802 in March, a drop of 10% over the year and representing just 66% of average income (down from 77% the year before), despite the average purchase price having actually increased by almost 6% to reach £143,906.
This is largely thought to have been aided by Help to Buy improving availability of high loan-to-value (LTV) mortgages, typically the preserve of first-time buyers, meaning that many have been able to get on the ladder with a smaller deposit. This assumption is backed up by additional figures revealing that the average LTV of a first-time buyer rose to 83.5% from 80.6% a year ago, and they're benefitting from lower mortgage rates too with the average being just 3.99%.
"The number of first-time buyers has returned to a pre-recession high, just in time for the one year anniversary of Help to Buy," said David Brown of LSL. "More first-time buyers are seizing the opportunity to have a helping hand from the Government in putting together a deposit. Help to Buy has allowed the bottom of the market to stay buoyant, despite property prices increasing."
Additional figures revealed a slight drop in valuations for first-time buyers over the month, with Connells showing that they fell by 7% compared to February and by 11% over the year. This is arguably ahead of the new mortgage affordability rules due to come into force tomorrow, however there are thoughts that this reduced level of FTB activity could be a short-term blip.
"Mortgage availability for first-time buyers is still improving, as more and more lenders shake off their fears about high LTV loans," said John Bagshaw of Connells, adding that "The picture remains extremely optimistic for the rest of 2014. In fact ensuring that progress is made on an affordable and sustainable basis is vital, [so] MMR can be seen as a necessary step towards a property ladder that's reliable at every step."
Overall, the picture looks somewhat rosy for first-time buyers. The improved availability of high-LTV mortgages means more people will be able to get on the ladder with a smaller deposit, and with mortgage rates still yet to increase significantly it's a great time to get on board. However, although the rule changes following the MMR should be positive for the industry as a whole, it can't be denied that they'll have an impact.
Sylvia Waycot, editor of Moneyfacts.co.uk, comments:
"Recent mortgage lending figures reveal an increase in first-time buyer activity after years of frustration. The launch of Help to Buy has certainly made first homes more assessable due to the lower deposit needed. However, we have just entered yet another turn of the table as far as mortgages go with the launch of the Mortgage Market Review, the results of which mean that monthly affordability is the main driver for offering mortgages rather than deposit or salary.
"To maintain the current levels of take-up of mortgages it is imperative that the industry does not scare away potential borrowers with stories of over-zealous income checks, and at the same time borrowers must understand the absolute need to be able to cover mortgage payments that are more likely to increase than not."
The market could well experience a slight downturn, particularly in the short-term, as buyers and lenders alike adjust to the new rules. First-time buyers could find things particularly difficult, but ideally this should only affect those who can't pass additional affordability stress tests – if you've got the funds in place it hopefully won't cause too many issues, and if you plan ahead and make the necessary preparations you can join the thousands of others able to realise their dream of owning their own home.
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