Alan Cleary - Managing Director of Precise Mortgages
May’s House Price Index from Nationwide makes for very interesting reading. The index report explains that whilst activity in much of the housing sector remains sluggish, one area that’s bucking the trend is the number of first-time buyers entering the market.
While most of the key indicators used to assess the health of the housing market remain subdued, first-time buyer numbers continued their recovery of recent months. In the year to March 2019, numbers reached 359,000 – that’s just 10% below their 2006 peak.
At first glance, it may seem strange that first time buyer numbers are up when, according to an article in What Mortgage, the amount those looking to buy their first property must earn has soared by 9% in just three years. What Mortgage reckons first-time buyers now need an average income of £54,000 to buy a typically-priced house in a UK city and be able to put down an average deposit of more than £38,000.
That’s a lot of money in anyone’s books, so why is the first-time buyer sector so bullish when the rest of the market is so cautious?
On closer examination of the market, it may just be that the stars are aligning for those looking to take their first step on the property ladder. On a macro-level, employment is at record levels and wage growth has finally started to outstrip inflation – quite simply, there’s more money in more people’s pockets. The extension of the Help to Buy scheme until 2023 and the removal of Stamp Duty for first time buyers on the first £300,000 for property purchases up to £500,000 have also helped.
But with house prices remaining high in relation to average earnings and raising a big enough deposit still a major barrier for many first-time buyers, perhaps the most important factor to helping first-time buyers is the considerable financial clout of the UK’s 11th biggest lender – the Bank of Mum and Dad. It’s predicted that parents will support one in five property transactions in 2019 by paying out £6.3 billion to help their children on to the property, with the average contribution rising to £24,000.
So with so many things currently looking as though they’re going in first-time buyers’ favour, are there any dark clouds on the horizon?
Well, the recent admission that the government is way off track on its ambitious pledge it made just two years ago to increase the number of properties built to 300,000 houses a year is a concern. Then there’s the Bank of England’s warning that interest rates are likely to increase several times over the next three years as a guard against inflation – and that’s assuming the UK avoids a no deal Brexit. Which brings us to the ongoing confusion over when the UK will finally leave the EU and, when we finally do, whether we’ll leave with a deal or not and the effect it will have on the UK’s economy.
But maybe the biggest obstacle to first time buyers realising their home owning dream is the continued reluctance of some high street lenders to lend, especially if they’ve only got a small deposit or if they’ve got some skeletons in their credit history cupboard.
This is where we can all help. Competition among lenders is driving rates down and has led to the creation of longer-term fixed rate deals. Here at Precise Mortgages, we’ve designed residential mortgages for those looking for an alternative to high street lenders, those buying new build properties or those with a less than perfect credit history. We’ve also recently reaffirmed our commitment to the Help to Buy scheme by extending our offering to Scotland and launching Help to Buy remortgage products to help early adopters of the scheme make the move to becoming established homeowners.
I believe that with the backing of lenders and the opportune alignment of factors in first-time buyers’ favour, particularly if they’ve got financial support from their family, now could be the ideal time for them to take their first step on the property ladder.