Sales to first time buyers in England and Wales reach seven year high

The number of first time buyer sales in England and Wales rose to a seven year high in July and they are paying smaller deposits, new research shows.

There were 30,000 first time buyer sales last month, a quarter more than 24,100 a year before, according to the latest First Time Buyer Tracker from Your Move and Reeds Rains, part of LSL Property Services.

It was the highest number of monthly first time buyers since August 2007 and data from estate agency chains also reveals the average first time buyer deposit fell 10% year on year from £29,609 a year ago to £26,642 in June 2014, a drop of almost £3,000 in a year.

The average deposit fell as a proportion of average first time buyer income as a result. Twelve months ago, the average deposit represented 82.6% of a first time buyer’s income. In July 2014, that had fallen to 72%. The average first time buyer income stood at £37,000 in July compared to £35,843 a year ago.

Over the same period, the average first-time buyer LTV has risen from 79.5% to 82.9%, helped by the increase in higher LTV lending facilitated by Help to Buy.

‘The first time buyer market is still active, even as the wider property market is starting to show signs of cooling down. As the economic recovery gathers momentum, more buyers are finding themselves in a position where they can afford to own their own home,’ said David Brown, commercial director of LSL Property Services.

‘A whole generation of young buyers were trapped on the side lines of the property market as the economy recovered from the recession, struggling to save for a deposit whilst inflation remained stubbornly high, savings rates were stuck at a historic low, and real wages fell. But the recent increase in high LTV lending options, enabled by Help to Buy, has allowed them a shot at getting on the ladder at long last, and the number of first time buyers has climbed to a seven year high,’ he explained.

‘Any stalling of the mortgage market caused by the introduction of the new mortgage rules has mostly worked its way through the system. Lending is operating on full steam ahead once again, although the end to end process has tightened and elongated,’ he added.

The latest e.surv Mortgage Monitor found that more borrowers are taking out high loan to value loans as the stock of affordable properties is falling. There were 13,256 approvals on properties worth £125,000 or less in July 2014, some 13% fewer than 15,244 a year ago.

The index also shows that the average first time buyer purchase price has risen 8% over the last year and 6.5% over the last three months to £155,844 in July. Simultaneously, average first-time buyer mortgage rates climbed for the fourth consecutive month in July, up from 3.99% in March to 4.19% in July. In the last three months they have climbed 0.14 percentage points.

As a consequence, first time buyer mortgage repayments are rising as a proportion of income. Over the last three months they have climbed from 21% of a first time buyer’s income to 22.6%. A year ago, they represented just 20.2% of a first time buyer’s annual income.

Brown pointed out that the urgency among first timers to lock into cheap fixes is propelling activity at the bottom of the market. Fixed deals have already started getting more expensive, as banks raise rates in anticipation of a potential interest rate rise and the Bank of England’s to-ing and fro-ing over the date of the base rate rises have added confusion into the economic equation and thus encouraging more buyers to act now, while the last of the cheap deals remain.

A regional breakdown of the figures reveal that the average first time buyer purchase price topped £150,000 in five UK regions in the three months to July. In London it reached £251,061, in the South East £194,955, in the East of England £173,550, in the South West £155,484 and in Wales £152,970.

First time buyers in the North East had the smallest deposits on average. The average first time buyer deposit in the North East was £10,710 in the three months to July. The second cheapest region in terms of deposits was Scotland, with an average deposit of £15,005, followed by Yorkshire and Humber at £16,760.

In the capital, the average first time buyer deposit was £62,253, twice the size of the average deposit in the South West which was £31,424 and the South East at £30,133. While in London the average first time buyer deposit was approximately 25% of the value of the property they were purchasing, in the South West it was just 20% and in the South East that figure fell further to £15%.

‘Even though house prices are more expensive in the capital and South West, borrowers are able to put down proportionally larger deposits. It’s reflective of typically higher incomes, with people able to save more before getting onto the housing ladder,’ said Brown.