Tuesday, October 02, 2012
Deposit requirements show signs of improvement according
to new data
- First time buyer transactions fall by 3.7% in August to same
level as they were a year ago
- LTVs for first time buyers rise to 81.5% in August, highest
since July 2011
- 94% of tenants want to become homeowners
First time buyer transactions fell by 3.7% to 18,300 in August
after a stronger June and July, returning to their August 2011
level, according to the latest First Time Buyer Monitor from LSL
Despite the dip in transactions, the average LTV rose from 78.9%
to 81.5%, it's highest since July 2011. As a result, the average
deposit size fell to £26,285, 8% lower than in July as lenders
showed signs of relaxing deposit requirements for select borrowers.
While first-time buyer house prices rose by 4.7% to £141,918 in
August, the affordability of both deposits and mortgage repayments
improved on a monthly basis as the average income of a first time
buyer rose. Deposits in August represented 73% of the average
first-time buyer's annual income, down from 81.7% in the previous
month, while mortgage repayments account for 22.2%, down from 23.4%
On an annual basis, the affordability of the average house
purchase deposit improved slightly, with deposits representing 0.6%
less of a buyer's annual income. Mortgage payments are slightly
less affordable than a year ago, climbing from 21.6% of a
first-time buyer's income as a result of larger mortgage advances.
The average mortgage repayment rate for first-time buyers rose to
4.8% August from 4.6% a year ago.
David Newnes, director of LSL Property Services, owners of
Your Move and Reeds Rains said:
"There are encouraging signs that lenders are relaxing deposit
requirements, but it's not translating into increasing first time
buyer purchases. In fact, following a seasonal drop-off in August,
first time buyer numbers are back to their level of a year ago.
Lending criteria remains incredibly stringent, and lenders are
cherry-picking those new buyers with the very cleanest credit
histories and largest incomes, limiting the number of buyers able
to take advantage of deals with the very highest LTVs.
We may be seeing lenders begin to react to the Funding for Lending
Scheme - but it's crucial that cheaper finance reaches a much
broader selection of new buyers to boost buyer activity and
alleviate the pressure on the private rented sector."
The Aspiration Gap
94% of registered tenants stated they wanted to become a
homebuyer, but only 7% stated they expected to buy this year. More
than half (54%) believed they would make a purchase within five
Despite higher average LTVs in August, prospective first time
buyers still see saving for a deposit as the biggest obstacle to
buying. 47% of buyers are not able to buy because they cannot put
together a big enough deposit, up from 41% three months ago. 14% of
buyers blamed high transaction costs, down from 15% in May. One in
twenty (5.1%) stated the prospect of falling house prices concerned
David Newnes continues:
"There's clearly underlying demand for homeownership, but the size
of the gap between those who'd like to buy and those who actually
can reflects the frustration that thousands of potential
The size of the average deposit may have dipped in August, but
tenants are still baulking at the prospect of saving over £26,000
at a time when rents and the cost of living are rising at a greater
rate than salaries. With higher transaction costs on the back of
the re-instated stamp-duty tax earlier in the year, the initial
cost of purchasing a home is still a bridge too far for the vast
majority of would-be buyers."
The profile of a first time buyer
The average first time buyer in August was aged 29 and had an
income of £36,000, 2.9% higher than the average of £35,000 in
44% of first-time purchases were entirely self-funded in August,
compared to 39% in May. However, the bulk of first-time buyers
require family help to buy. Over half (53%) received familial help
with deposits or mortgage payments, or through inheritance.
Four in ten first-time buyers (39%) stated they are buying now
because they have only recently been in the financial position to
do so, up from 36% in May.
First-timers were most commonly looking for houses with two or
more bedrooms. 28% were looking for a two bed house and 51% were
seeking houses with three or more bedrooms. The next most popular
type of property was two-bed flats, for which 14% of first-time
buyers were looking in August.
David Newnes said:
"The Liberal Democrats may be pushing for a change to allow
parents to access pension pots to fund their children's deposits,
but the reality is that the Bank of Mum and Dad is already playing
a key role in the current market. Four in ten borrowers receive
direct help from family members to help fund downpayments on their
first homes. It's crucial those who do not have family wealth to
fall back on are overlooked. The NewBuy scheme may offer limited
relief in autumn's home buying season, but it has yet to have
anywhere near the level of impact necessary to revive historically
low first-time buyer numbers."
On average, first time buyers expect house prices to rise by 3.2%
in the next year, compared to 2.1% in May. In August house prices
in England and Wales rose annually by 2.6% according to the
LSL/Acadametrics house price index.
David Newnes concludes:
"The picture is by no means the same across all parts of the
country, but house prices have been steadily strengthening in
recent months, a fact that has fed through into improved confidence
from new buyers. Historically affordable interest rates, combined
with optimism in the future direction of house prices is
underpinning a desire for homeownership, especially when set in a
context of the rising cost of rental accommodation."
First-time investors expect to remain in their properties for an
average of 7.6 years. Only 3% of first time buyers expect to stay
in a property for less than two years
Information obtianed from The Property reporter