Last year saw more first time buyers in UK but they are older and pay more

The number of first time buyers in the UK is estimated to have reached 335,750 in 2016, up 7.3% and the third year in a row of growth, according to a new report.

It means that those getting on the housing ladder for the first time have reached their highest level since the start of the housing crisis in 2007, according to the latest Halifax First Time Buyer Review.

Having reached an all-time low of 192,300 in 2008, the number of home buyers getting on to the first rung of the property ladder has grown by 75% to its current level. However, first time buyer numbers still remain 17% below the immediate pre-crisis peak of 402,800 in 2006.

The report says that the importance of first time buyers to the housing market continues to grow. In 2006 some 36% of all house purchases financed by a mortgage were made by first time buyers. In 2016, this proportion is estimated to have reached 49%, the highest level since 1996. In the past year, this share has risen from 46%.

The research also shows that the average price and average deposit paid by first time buyers reached new highs in 2016 and has more than doubled over the past decade from £15,168 in 2006 to £32,321 in 2016, an increase of 113%.

Four regions, all in southern England, have seen at least a doubling in the average deposit put down. In London the average deposit by new entrants to the housing market has grown four fold in the past decade from £26,701 to £100,445, an increase of 276%.

Other regions to see a sharp rise in the average deposit include the South East where it has grown to £47,472, up 173%, the South West up 130% to £34,306 and the East up 122% to £31,864.

By comparison, first time buyers in Northern Ireland have fared the best with average deposits falling by 20% from £20,834 in 2006 to £16,695, the lowest in the UK.

The average national deposit of £32,321 is equivalent to 16% of the average price of a typical first time buyer home, having fallen from 25% in 2009. Meanwhile, a decade ago, the average deposit had been as low as 10%.

In 2016 the average house price paid by first time buyers was £205,170, the highest on record. Since falling to £135,254 at the height of the housing downturn in 2009, the average price paid by first time buyers has grown by 52%. In the past year, this average has grown from £191,929, an increase of 7%.

In London first time buyers have seen the average price rise by 81% or £180,273 since 2009 to £402,692, the highest on record. Not only is the average price in London three and a half times higher than in Northern Ireland at £115,269, it is also £130,000 higher than the second most expensive region the South East with an average of £272,777.

As house prices for a typical first time buyer home have risen there has been a growing trend towards mortgage terms longer than the more traditional 25 year term. In 2006 some 64% of first time buyers had a mortgage term of between five and 25 years, whilst the remaining 36% were over 25 years.

In 2016, this mix has markedly reversed, with 60% of mortgages at a term of 25 years or more, while the five and 25-year mortgage terms have fallen to 40%. Indeed, in 2016 some 28% of all first time buyers with a mortgage opted for a 30 to 35 year term, a share that has grown sharply from 11% in 2006.

On the other hand, the share of 20 to 25 year mortgage term has fallen from 53% to 28% during the same period. The proportion accounted for by 25 to 30 year terms has also grown from 22% to 28%.

Low interest rates have kept mortgage affordability under control. The proportion of disposable earnings devoted to mortgage payments by a first time buyer stood at 32% in 2016 which is in line with the long term average of 33%. This is a substantial improvement since the summer of 2007 when this figure reached a peak of 50%.

Record low mortgage rates have been a major contributing factor driving this improvement, according to Martin Ellis, Halifax housing economist. ‘First time buyers play a crucial role in the housing market, and each transaction has an impact further up the chain, as well as helping to drive levels of house building,’ he said.

‘The number of buyers getting on the housing ladder exceeded 300,000 for the third year in succession, a welcome boost for current home owners, house builders and the Government. Continuing low mortgage rates, high levels of employment have supported the market and Government schemes such as Help to Buy have improved affordability, enabling more first time buyers to buy their own property,’ he pointed out.

‘However, across the regions there is a contrasting picture. In London, which has one of the youngest populations in the UK, the average house price for a typical first time buyer is now more than £400,000 with an average deposit of over £100,000, more than twice that in the South East, the next most expensive region,’ he added.

The research also shows that Stirling in Scotland is the most affordable local authority district) in the UK with an average property price of £137,222, some three times local average gross annual earnings, followed by Inverclyde and West Dunbartonshire, also in Scotland. Indeed, eight of the 10 most affordable areas for first time buyers are in Scotland.