There were 22,000 first time buyer transactions in April, almost 3,000 more than in March, when there were just 19,100 transactions, the latest First Time Buyer Monitor from LSL Property Services shows.
And the average mortgage rate remained low, only rising slightly to 4.31% in April from a record low of 4.29% in March. Annually, the average mortgage rate was 0.35% lower than in April 2012, with falling headline rates helping to attract more first time buyers.
The report says that buyers with smaller deposits began to reap the benefits from the government’s flagship Funding for Lending scheme in early 2013. The scheme has allowed lenders to offer more mortgages to high LTV borrowers. The average LTV in April 2013 rose to 80.4% from 79.9% in April 2012, reflecting greater lending to high LTV borrowers compared to last year.
However, the falling affordability of deposits kept a lid on bubbling growth in the market and partially offset the improvements in first time buyer mortgage availability, preventing a greater increase in transactions. The average deposit rose 3% to £27,178 in April, despite lower rates and a rise in the average LTV, because of rising house prices.
Rising house prices also affected affordability for first time buyers and were the primary cause for the hike in deposits. The average price of property purchased by first time buyers rose 2% in April, to a high of £138,632.
Annually, the increase in property price is even more apparent. Prices are now 12.1% greater than in April 2012. This has had significant impact on deposit sizes, the report points out. Compared with last year, deposits now represent a 4.2% greater proportion of a first-time buyer’s wage. And as rising house prices drove a rise in the average deposit, mortgage repayments also rose as a proportion of a first time buyer’s income.
Overall there were 78.6% more transactions in April 2013 than a year ago, when there were just 12,300 transactions. However this figure is distorted, due to an artificial spike in first time buyer numbers in March last year caused by the implementation of new stamp duty rules on the 25th March 2012, introducing a 1% stamp duty on properties valued between £125,000 and £250,000.
The report explains that considering this, it is all the more impressive that the total transactions in the first four months in 2013 has increased so significantly. The first four months of 2013 saw 72,900 borrowers secure a deposit for their first home, 15% higher compared to 63,300 in the first four months of 2012.
First time buyer lending so far this year is far stronger, even though the number of transactions in the first three months of 2012 was artificially high, thanks to the rush to beat the end of the stamp duty holiday.
‘Transactions among first time buyers increased significantly in April as an improvement in the availability of high LTV mortgages allowed more first time buyers to realise their dreams of homeownership. Increased lender confidence has lead to lower rates and a wider range of first time buyer mortgages. The result is a super strength opening to 2013 that has seen 15% more first buyers than last year,’ said David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains.
‘But weak wage growth and rising house prices are stymieing first time buyer lending, and keeping a lid on a market that could otherwise be boiling away happily, by preventing further transactions. Mortgage rates may be at record lows but repayments are equal to a larger proportion of the average first time buyer’s wage. And the size of the deposit they must save before they can purchase has increased both in monetary value and as a proportion of wage, a second blow for potential buyers that is large enough to knock many out of the ring and prevent them from buying,’ he explained.
‘Schemes like the recently launched Help to Buy are designed to launch a counter offensive on deposit requirements. But the scheme may actually inflate property prices, so may turn out to be counter productive,’ he added.
