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Stamp duty changes in UK push first time buyer deposits to 18 month high

The average first time buyer deposit was £29,127 in January, up 7% compared to December 2014 and 15% higher than £25,314 in January 2014, the first time buyer tracker report from estate agents Your Move and Reeds Rains shows.

The data also shows that first time buyers are saving the largest amount for their deposit since July 2013, some 18 months ago, as savings from December’s stamp duty changes take effect.
 
This has also helped drive rising purchase prices for first time buyer homes, which have climbed to a new record. New buyers paid an average of £160,304 in January, 12% more than £143,343 a year ago.
 
Revisions to the stamp duty slab system have reduced the upfront costs for many first time buyers, allowing them to divert that cash into a deposit fund. First time buyers paying the average purchase price would have been liable for stamp duty fees of around £1,600 before the graduated system was implemented, but this would now have been reduced to £700, saving them roughly £900.
 
The report also says that simultaneously, as wages start to see a significant pick-up in real terms, growing purchasing power is reflected in the average first time buyer Loan to Value ratios and these have fallen 1.1% over the last three months, suggesting deflation and growing wages are allowing first time buyers to put together slightly larger deposits.
 
Despite this, the average loan to income ratio for first time buyers has risen on an annual basis. On average, deposits now represent 75.4% of a first time buyer’s income, compared to 70.6% a year ago.
 
‘A fusion of economic factors is alleviating some of the financial burden of forming a deposit. Wages are starting to recover and inflation has fallen to a record low, meaning buyers have slightly more cash to play with day to day. And stamp duty fees were slashed for many new buyers when the government reformed the old slab system, freeing up further funds. It’s still difficult to save, with savings rates tied closely to the low base rate. But it’s easier to put cash aside than it was a year ago,’ said Adrian Gill, director Your Move and Reeds Rains.
 
‘However, property prices have pushed a new record for first-time buyers, meaning these extra funds are being diverted directly into larger deposits. Putting together a deposit to buy a property remains one of the most arduous tasks for prospective home-buyers, and schemes like Help to Buy are essential to allow the swathes of buyers reliant on higher LTV mortgages to get onto the housing ladder,’ he explained.

The data also shows that there were 21,200 first time buyer completions in January 2015, some 19% lower than 26,100 in December, however this was partly due to a natural seasonal slowing in applications in the run-up to Christmas.
 
Furthermore, it says that a fall in first time buyer numbers is to be expected between December and January. Completions fell 18% month on month in January 2014, 20% month on month in January 2013 and 31% month on month in January 2012.
 

Gill pointed out that while lending dropped away a little in the run-up to Christmas, approvals have bounced back a little in January, and demand at the bottom of the market remains strong. ‘After the usual seasonal dip we expect completions in this part of the purchase market to reflect steadier front-end sales activity. Slow and steady progress, in line with improving household finances, is the order of the day,’ he said.
 
The average purchase price for first time buyers in London rose to a new record high of £308,067 in the three months to January 2015, more than three times the average purchase price in Northern Ireland of £90,241.
 
On average, Londoners put down a deposit of £73,711, by far the greatest amount of any UK region. This was more than 10 times the size of the average first time buyer deposit in Wales at £7,032.

‘Prices have cooled slightly at the very peak of the London market, but the same isn’t true at the bottom end. First time buyer demand remains strong, boosted by an insatiable appetite for homes,’ Gill pointed out.

‘The lure of London as a culture capital and professional hub continues to attract buyers in from other areas of the country, and indeed from other countries, despite the higher average price tag,’ he added.

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