The summer of the first-time buyer
In the week Andy Murray won Wimbledon, it’s not surprising sport dominated the newspapers. But turn to the financial pages and you’ll find a different kind of victory – the return of the first-time buyer.
According to the CML, the number of first-time buyers has reached their highest levels since late 2007. In May, they accounted for almost half of all house purchase loans. Even better, the size of a typical deposit has decreased to 17% of the total property value.
But in an austere age, how are more people managing to beat the odds and join the world of owner-occupation?
One reason is that mortgages are starting to look more attractive. Last August, the government introduced a scheme which provided banks with cheaper funding, in the hope they would cut mortgage rates. In 2013, they did. By February, interest rates on short-term fixed-rate mortgages were at an all-time low.
But however low a mortgage rate is, you can’t take advantage of it unless you have the deposit to go with it. The government tried to address this problem in the March Budget. The first part of its scheme, Help to Buy, effectively expanded a previous scheme for first-time buyers. Borrowers put down a 5% deposit on a new build property, take out a government loan covering the next 20% of the price and borrowing the other 75% from a mortgage lender.
The scheme has had some concrete effects – one major house builder, Taylor Wimpey, said over 1,000 potential homebuyers reserved properties through Help to Buy in the first three months.
All this is welcome. However, government schemes on their own don’t explain the 25,100 borrowers who bought their first home in May. Perhaps these buyers were helped by the fact that unemployment has fallen, the UK avoided a triple-dip recession and the Eurozone crisis has temporarily simmered down.
And then there’s the shift in the mortgage market itself. While several high street banks reduced lending, smaller building societies and challenger banks have thrown themselves into the challenge of helping first-time buyers.
Using human underwriting and often catering directly to local borrowers, these lenders have pioneered low-deposit and savings-linked mortgages since the financial crash. In the first five months of 2013, building societies and other mutuals increased lending to first-time buyers by 50% compared to the previous year.
The mortgage market has a long way to go before it is game, set and match for those wanting to own their home. But for now, the ball is in the first-time buyer’s court.