First time buyers up 45% on last year

The number of first-time buyers rose 45% year-on-year in July, thanks largely to a sharp fall in mortgage rates,  according to the latest First Time Buyer Monitor from LSL Property Services.

There were 26,100 first-time buyer sales in July, 8,100 more than twelve months ago. It was the highest number of first-time buyers since November 2007, indicating the improvement in the first-time buyer market is gathering even more momentum.

A sharp increase in the affordability of mortgages drove the improvement. The average mortgage rate fell from 4.92% in July last year, to 3.99% this year, attracting more buyers to the market. Rates have now fallen every month for the last year, as banks are passing cheap credit from Funding for Lending onto borrowers.

The cheaper rates meant that mortgages were more affordable for first-time buyers. The proportion of income represented by mortgage repayments fell year-on-year from 21.6% to 20.4%.

	Transactions	Average Purchase Price (£)	Average LTV
July 2013	26,100	£146,726	79.5%
June 2013	25,300	£146,250	79.6%
1 month change	+3.2%	+0.3%	-0.1% (from 79.6%)
3 month change	+40.3%	+8.0%	-0.9% (from 80.4%)
1 year change	+45.0%	+8.0%	-0.4% (from 79.9%)

But there are warning signs ahead, with rapidly rising house prices threatening to price the next wave of first-time buyers out of the market. Deposits now represent a far greater proportion of the income of a first-time buyer, and are rising. The average deposit is now equal to 83.1% of annual income, up 5.0% on July last year – slowing the pace of the recovery in first-time buyer lending.This was a result of rising house prices, which have pushed average deposits skyward, despite banks’ willingness to lend to those with a smaller deposit size.

The average purchase price for a first-time buyer rose by 8% year-on-year in July, and is now £146,726. This was 0.3% higher compared than in June, when the average purchase price was £146,250 and 6.0% higher than the average price so far this year, which was £138,353.

And the average LTV for a first-time buyer remained broadly flat – down 0.4% year-on-year to 79.5% in July, and down just 0.1% from June.

First-Time Buyer Affordability

	Average deposit (£)		Deposit as proportion of income	Average mortgage rate	Mortgage repayment as proportion of income
July 2013		£30,109	83.1%	3.99%	20.4%
June 2013		£29,845	83.2%	4.06%	20.7%
1 month change		+0.9%	-0.1%	-0.07%	-0.3%
3 month change		+13.1%	+6.7%	-0.25%	+0.1%
1 year change		+10.0%	+5.0%	-0.93%	-1.2%

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits. Rates have fallen sharply, and there are good deals to be had for savvy first-time buyers, which has made a mortgage much easier to come by. The uptick in confidence, beneficial to both parties, is contagious.

“But there is a down-side to the good news. There is simply not enough housing stock to match continued demand. If supply fails to keep pace with demand the housing market will become increasingly unsustainable. Prices will rise sharply, and future first-time buyers will be left in the lurch. There is a desperate need for further cheap property in order for the run of success to continue.”