First-time buyer lending in London at highest level since 2007

First-time buyers accounted for 11,200 loans for house purchase in London in the second quarter of 2013, the largest quarterly number since the end of 2007, according to new data from the CML released today.

Figures from the second quarter show that first-time buyers in London make up a larger proportion of house purchase loans compared to the UK overall. In the second quarter, 56% of house purchase loans were to first-time buyers in London compared to 46% in the UK overall.

First time buyers

In the second quarter of 2013, the 11,200 loans advanced to first-time buyers in London marked an increase of 19% on the previous quarter and a rise of 38% compared to the second quarter of 2012.

Typical loan amounts have also increased, a knock-on effect of strong house price growth in the capital, up 6.9% in the second quarter compared to 2.9% for the UK overall. This results in a larger growth in the value of lending to first-time buyers. £2,490m was advanced to these borrowers in the second quarter, a 33% increase on the first quarter of 2013 and up 47% compared to the second quarter last year.

Whilst first-time buyers took out larger loans (on average £192,600 compared to £183,900 in the second quarter last year) the affordability was almost unchanged thanks to higher incomes and falling interest rates. This meant on average first-time buyers spent 20.8% of their income on mortgage payments almost unchanged from 21% in the first quarter of 2013.

Affordability in London does however remain tighter than in the UK overall with first-time buyers borrowing an average of 3.67 times their income compared to 3.30 for the UK overall in the second quarter. This may be why first-time buyers in London are generally putting down larger deposits than in the rest of the UK. The average loan to value remains at 75% in London compared to 80% for the rest of the UK. In addition, incomes of first-time buyers in London are higher than in the rest of the UK- on average £52,100 per annum compared to £35,400 in the UK overall.

Lending for house purchase

Total house purchase lending in London was boosted by the increase in lending to first-time buyers and showed an increase of 16% compared to the first quarter and 18% compared to the second quarter of 2012.

There were 20,100 house purchase loans advanced in London worth £5.1bn in total, a 23% rise in value compared to the first quarter of 2013 and up by 20% compared to the second quarter last year.

Every minute on Tube sees house prices rise £96,674

We all know that the closer you get to central London, the higher the property prices.
But recent research by Wetherell, a Mayfair estate agency, highlights the precipitousness of the “price cliffs”.
For every minute you spend on the three Underground stops between Earls Court and Sloane Square, property prices rise by £96,647. 
Travel the three stops from Southwark to Green Park and prices increase by £152,640 for every minute of the journey. Or take the train from Vauxhall to Green Park – a seven-minute hop – and the average property will cost an additional £229,286 at every stop.
“You can see the price plateau of the prime central London areas and the ‘fiscal cliff’ as prices drop away. It’s particularly striking just east of the Northern Line’s Charing Cross braTynch where values to the west average more than £1m, but to the east can be half that amount,” says Wetherell’s managing director, Peter Wetherell.
 He has worked with Dataloft property consultancy to produce the first London Underground property map based on sales and rental values of two-bedroom flats within a quarter of a mile of the 63 Tube stations in zone 1.
“It shouts at international investors that if they are looking for prime that they should be north of the Thames and stay within zone 1. I think Mayfair looks particularly good value,” says Wetherell. “It also makes these other Tube locations great value. The ‘price hike per minute’ figures show people that you can buy comparative value in the cheaper priced areas but still enjoy the urban lifestyle and look forward to price growth and gentrification of their neighbouring area.”

Prices in the capital up 12% year-on-year, but signs of a two-speed market develop

Pause in new seller average asking prices as they rise by just £136, though still hovering at record levels

Annual increase jumps to 12% (+£55,075) this month, up from 7.9% (+£37,803) in June though strength of Inner London market confirmed by year-on-year increase of 14.9% compared to Outer London’s ‘mere’ 6.8%

Inner London price ‘over-spill’ appears to be ‘leap-frogging’ Outer London and benefitting South East

The asking prices of properties coming to market in London this month increased by an average of just £136 to £515,379. Even with such a small rise, this is the third month in a row that the capital has set a new record, and the fifth record in seven months so far this year.

Miles Shipside, director and housing market analyst at Rightmove comments:
“It looks like London’s sellers are pausing for breath by holding prices at a virtual standstill after an 11% rise so far in 2013, including five monthly asking price records. It remains to be seen whether this is the start of the usual summer slowdown or whether the strength of buyer demand and the shortage of property supply will see prices rise again over the summer selling season.”

The annual increase jumps to 12% (+£55,075) this month, up from 7.9% (+£37,803) in June. This rise is due to the greater resilience in prices this July compared to last, when a large fall of 4.1% coincided with the Queen’s Jubilee depressing both prices and activity.

The heady 12% hike masks a two-speed market in the capital, with the strength of Inner London* highlighted by a year-on-year increase of 14.9% compared to an Outer London** rise of just 6.8%. While there has been much comment on the buoyancy and appeal of ‘super-prime’ central London (e.g. Mayfair, Belgravia, Knightsbridge and Chelsea) these statistics show that buyer demand and seller pricing power is generally gaining greater traction in the Inner London boroughs compared to those further out.

Shipside observes:
“It looks like the hot money is being attracted by Inner London, either being invested by new buyers or re-invested by those trading up and wanting to stay central. Some leaving Inner London will be choosing a borough a bit further out, but others are leap-frogging the outer boroughs altogether in favour of better choice and value in the South East. Perhaps as a consequence, new sellers in the South East are asking 15.0% more than they were at the start of the year compared with an average of just 6.8% in Outer London.”

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^*Inner London: Camden, City of Westminster, Greenwich, Hackney, Hammersmith and Fulham, Islington, Kensington and Chelsea, Lambeth, Lewisham, Southwark, Tower Hamlets, Wandsworth

^**Outer London: Barking and Dagenham, Barnet, Bexley, Brent, Bromley, Croydon, Ealing, Enfield, Haringey, Harrow, Havering, Hillingdon, Hounslow, Kingston-upon-Thames, Merton, Newham, Redbridge, Richmond-upon-Thames, Sutton, Waltham Forest

The Greater London Property Drought

The extent of the growing housing crisis in the UK is often debated amongst political parties and in the media. Whilst the situation is being felt across the country, the crisis is most prevalent within the 32 boroughs of Greater London that are now home to almost eight million people and counting. 
The relentless demand to live and work in the region is one factor but this is compounded by the severe shortage of property being built and fewer numbers of existing stock being placed on the market. In the first six months of 2013, almost 65,500 homes were put on the sales market. 
This may sound like a considerable number but, just three years ago, the volume of property on the London market in the first six months of 2010 was close to 87,400 properties. 
Since then, seasonal peaks and troughs aside, the flow of new property to the sales market has been in gradual free fall and, by June 2013, supply has contracted by 40% over three years to just shy of 10,500 homes. Looking back further, over the last six years, supply has contracted by a staggering 67% in the Greater London area. Economic uncertainty, lending restrictions, low new build completion rates and overseas buyers have all played their part in restricting stock in recent years. 
However, the current situation is merely a function of investors’ quest for both yield and security. The average monthly rent for a London home now stands at over £2,400. If one couples that with a monthly rise in the underlying value of the property by around 10% per annum, then the investor is presented with a highly attractive proposition. Doug Shephard, director at Home.co.uk, commented: “Home price rises in and around London seem to be relentless. 
Affordability
Affordability issues for equity holders, let alone first-time buyers, are growing and hinder attempts to move. Consequently, the capital finds itself in a bizarre situation: market prices are showing signs of overheating but, despite this, they are being further inflated by the severe drought in property stock – the characteristics of a classic investment bubble. 
Given the market conditions, it is no surprise that London homeowners are increasingly looking to let their existing home and then rent an alternative property, often outside of the region. This so-called ‘double renting’ can obviously help homeowners access a different lifestyle yet it places even more pressure on the stock of properties for sale. 
As the number of new builds under construction in the capital continues to fall behind government targets with no major turnaround in sight, the emphasis must be on creating the right economic and market conditions that give potential vendors enough incentive to return to the London market in significant volumes.
 Economic theory suggests that incentive to divest will only come from either better performing investments aside from London property or, much worse, a bust.”