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London’s home to 29% more FTBs than a year ago

London’s home to 29% more FTBs than a year ago

Category: Mortgages

Updated: 28/05/2014
First Published: 28/05/2014

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 It is now over 6 months old so the content may be out of date.

The London property market may be booming, but it seems it hasn't put off first-time buyers (FTBs) hoping to get a foothold in the capital. In fact, according to figures from the Council of Mortgage Lenders (CML), lending to FTBs in London was up 29% in the first three months of 2014 compared to the same period last year, indicating that rising property prices aren't holding people back.

In total, FTBs in Greater London took out 11,900 mortgages during the quarter, significantly more than a year ago. The value of these loans increased too, totalling £2.7 billion – again a marked increase on 2013's figure, being a full 49% higher. Analysis would suggest that this could be the result of a combination of two factors – specifically, the fact that house prices in the capital are rising rapidly (higher prices equals higher mortgages) together with the Government's Help to Buy scheme, where prospective buyers can put down a deposit of just 5%.

Brian Murphy, head of lending at the Mortgage Advice Bureau, commented on the findings: "It is positive to see that despite rising house prices, London has not become an exclusion zone for first-time buyers. Today's figures should reassure aspiring owners that mortgage finance is still available in the capital providing you meet affordability criteria, so buyers should not give up hope of stepping onto the property ladder."

However, despite this impressive annual growth rate, the figures suffered a seasonal dip and were actually lower than those recorded in the final quarter of 2013 (posting a decrease of 11% by volume and 9% by value). This kind of lull is often witnessed during the first quarter of the year, according to industry insiders, although additional factors could play a part too – including the distinct lack of suitable homes available.

Affordability is of course a key concern as well, particularly given the introduction of new rules following the Mortgage Market Review (MMR). The figures show that FTBs in London spent 20.7% of their income on mortgage capital and interest payments during the quarter, compared to the national average of 19.3%. They tend to borrow more too, with the average income multiple being 3.83 (compared to the UK average of 3.42) and the typical loan size being £200,000, significantly more than the national average of £118,750.

However, their household income is also higher – posting an average of £52,600 – which perhaps accounts for their ability to buy in an area where prices are rising so rapidly. Ideally this also means they won't come into financial difficulty, as together with measures such as MMR and the restrictions recently announced by Lloyds Bank (where mortgage applications of £500,000+ will be capped at no more than four times the borrower's salary), buyers can only take out mortgages that are fully sustainable for the long term.

Paul Smee, director general of the CML, concluded: "The usual seasonal dip in lending has affected London mirroring the rest of the UK but lending year-on-year shows a strong upward trend. First-time buyers continue to be a key driver as an increasing number realise their aspiration of owning a home.

"Affordability remains a crucial factor and policymakers need to be aware that any measures they implement may have different effects in different locations," he added, echoing similar calls from the industry for the Government to not apply broad-brush measures to cool the market given the stark regional differences across the country.

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