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First-time buyers are “lifeblood of market”

First-time buyers are “lifeblood of market”

Category: Mortgages

Updated: 30/01/2014
First Published: 30/01/2014

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 It is now over 6 months old so the content may be out of date.

First-time buyers are playing an increasingly important part in the recovery of the housing market, accounting for around 44% of activity.

This figure, according to the Nationwide House Price Index, is close to an all-time high, with 73,700 of loans approved in the third quarter of 2013 being to those entering the housing market for the first time. This is up 32% compared to the same period in 2012.

Commenting on the figures, Robert Gardner, Nationwide's chief economist, said:

"First-time buyers are the lifeblood of the housing market. As well as accounting for a significant proportion of housing transactions – historically around 40% of transactions involving a mortgage – they also play an important role in the wider market, for example in helping to complete chains, enabling those that already own a property to move."

Affordability can be difficult for first-time buyers, with the typical first home costing 4.6 times average earnings, but this figure is still well below the 5.4 recorded in 2007. The typical mortgage now accounts for 19% of borrowers' average monthly earnings.

The Help to Buy scheme and the general increased availability of mortgages has helped buyers get on the ladder – although the typical first-time buyer is still putting down a 20% deposit.

Low interest rates have encouraged activity too, whilst the increase in employment is thought to be helping markedly with unemployment falling much faster than expected – rapidly approaching the 7% trigger for raising base rate.

This combination of factors has helped house prices record their thirteenth successive monthly increase in January, rising by 0.7%, according to the Index. Prices currently stand at £176,491, 8.8% higher than a year ago, although this is still 4% below their peak in 2007.

Mr Gardner finished with a word of warning: "More than a million first time buyers have entered the market since the Bank Rate was cut to a 300 year low in early 2009, many of whom have yet to experience a hike in interest rates. While we do not expect interest rates to rise until mid-2015, borrowers should be prepared for the prospect of interest rates increasing back towards more normal levels."

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