Market

Is this the year for first time buyers?

Ginetta Vedrickas looks at what the 2022 property market holds for first time buyers

2021, A BUMPER YEAR FOR FIRST TIME BUYERS

With Stamp Duty incentives and continued low interest rates – despite recent increases – 2021 proved to be a good year for first time buyer numbers. Figures from the Halifax’s First-Time Buyer Review looking at house purchases throughout 2021, saw first time buyer numbers rise by what the lender describes as “a record rate”, up by 35% on 2020, in spite of what the lender sees as “low affordability”. Digging deeper into the stats, research revealed that the average age of a first time buyer is now 32 who, on buying their first home, on average puts down a deposit of £53,935 on a property with an average purchase price of £264,140.

BUYING PATTERNS OVER THE YEARS

Today’s first time buyers may be on average age 32, a figure that has risen from 29 in 2011, and – across all regions across the UK – first timers are now aged over 30 on average. Looking back to 2009, when 193,940 buyers managed to get on the property ladder, recent figures show that first time buyer numbers have more than doubled. And, with a steep increase of over 100,000 in the last 12 months, a total of 409,370 new buyers entered the housing market in 2021. Despite this surge in numbers, first time home purchasers constituted around half of all home loans.

REGIONAL DIFFERENCES

All regions across the UK saw a marked rise in the number of new buyers in the market last year. The biggest increase was in London, where numbers rose by 49%. The smallest, Scotland, still saw an increase by nearly a quarter at 24%. The number of first time buyers has more than doubled over the last 10 years in every region except London.

AVERAGE DEPOSITS FALL

As more buyers entered the market, the average first time buyer deposit fell by 6% for the UK, with only Wales and Scotland noting an increase regionally. This fall in the UK average was set against a rise in the average purchase price of first homes, which meant that, overall, the gap between purchase price and deposit widened in every region. In London for example, in 2020 an average house cost £488,771 with an average deposit of £130,281. In 2021, prices in the capital on average dropped to

EXPERT COMMENT

2022 is already proving to be a ercely competitive and frenzied market. FTBs need to ensure they have their done their homework, have their mortgages or AIPs in place and be ready to act swiftly if they want to avoid missing out. We have already seen twice as many new buyers registered in January this year compared to last year, with more enquiries in a month than any single month last year, so it’s clear that FTBs are going to face a lot more competition than in previous years.

Matt Johnson, Director, JOHNS&CO.

£475,819 requiring a deposit of £115,759, an 11% drop.

So far this year, the latest figures from Halifax show that monthly house price growth fell to +0.3%, the lowest rise since June 2021. But annual rate of growth remains steady at 9.7% and average house prices have edged up to a record high of £276,759 with transaction volumes returning towards pre-Covid levels. Overall, prices remain around £24,500 up on this time last year, and £37,500 higher than two years ago.

Halifax’s MD, Russell Galley, says that, despite record levels of first time buyers stepping on to the ladder last year, younger generations still face significant barriers to homeownership as deposit requirements remain challenging, “This situation is expected to become more acute in the short-term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates. While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”

HOUSE PRICES OUTSTRIP INCOMES

The Halifax review looked at the cost of homes versus average incomes to examine affordability for those trying to get on the housing ladder. Affordability is measured simply as the average house price divided by average income, before any tax or other deductions, giving the price to earnings ratio (P/E). Homes are generally considered to be unaffordable when the price is more than four times the average income – if a house costs £200,000 it would be considered affordable for a household with an annual salary of £50,000 ie four times P/E.

Today, the average price to earnings ratio for UK first time buyers stands at 6.9 x P/E, 75% over the affordability threshold. Affordability in all but three local authorities across the UK has fallen since 2011: Scotland proved to have better hunting grounds for first time buyers with the top five most affordable local authorities all north of the border with Clackmannanshire topping the charts as the most affordable spot. The price of an average FTB home is now less than four times the average income, considered the limit for affordability, in just 15 local authorities across the UK.

Examining the statistics, mortgage director for Halifax, Esther Dijkstra, explains why first time buyer numbers were on the up, despite growing unaffordability, “There were a number of factors influencing homebuying decisions in 2021. While working from home and the “race for space” was key for many, it’s clear that the Stamp Duty holiday increased the availability of first-rung homes as others moved up the ladder.” Dijkstra also believes that lifestyles have changed over the years as more of us choose to go on to higher education, travel or have more work mobility, travelling around the UK for work, which she suggests could all be factors in the increase in age of today’s first time buyers, “Undoubtedly, the biggest drivers are the cost of homes and the need to save a significant deposit to get on the housing ladder. In 2021, the increase in average house price to £264,140, combined with difficulties in raising a deposit, meant that the gap between purchase price and deposit widened in every region in the UK.”

WHAT WILL HAPPEN IN 2022?

In 2021 we might have seen more first time buyers get on to the property ladder, but we all want to know what will happen this year. According to RICS UK Residential Market Survey, based on figures for the end of last year, surveyors across the UK predict that new buyer enquiries will continue rising modestly, but they warn that the lack of new listings remains a challenge. The study found a continued shortage of new properties being listed for sale, despite a rise in new buyer enquiries, is still preventing a pick-up in sales volumes, with house prices continuing to rise.RICS found that this imbalance between demand and supply is currently underpinning growth in house prices. In December 2021, 69% of respondents reported a rise in house prices, and over 67% believe that prices will continue rising over the coming year too.

ZOOPLA’S NEW YEAR FINDINGS

Research by Zoopla saw demand for property soar by 49% compared to the new year markets of 2018-2021, rivalling the record demand seen during the Stamp Duty holiday. The property portal found that demand for flats is on a sharp upward trajectory for the first time in several years, with demand outside London hitting the highest level in five years. Meanwhile, demand for family houses outside London is four times higher than the five-year average. The portal says that the pandemic is having the biggest influence on the property market thanks to ongoing demand for space, and three-bedroom houses, especially outside London, are the most sought-after. Geographically, the suburbs remain in the highest demand, with Thurrock in Essex, and the suburbs of Birmingham, Glasgow and east London, such as Barking & Dagenham, all topping the list of most sought-after areas.

EXPERT COMMENT

With a lack of quality supply still driving competition between prospective buyers, the landscape remains overwhelmingly in favour of sellers. This has proved challenging for rst time buyers.

Emma Cox, Sales Director, Shawbrook Bank

EXPERT COMMENT

The continuous house price growth is showing no signs of slowing down as they have once again risen. At a time where the cost of living is increasing, potential homeowners are faced with a real challenge to raise the necessary funds for a deposit and be in a strong enough nancial position to pass affordability checks for a mortgage, even with some attractive low-deposit deals around. low-deposit deals around.

Chris Hutchinson, Hutchinson, CEO of rental CEO of rental platform platform Canopy Canopy

EXPERT COMMENT

Although respondents to the latest survey continue to highlight a lack of stock on the market, they do encouragingly still see some scope for transaction volumes to edge upwards over the coming months. More of a concern is the suggestion that the mismatch between demand and supply will drive house prices even higher through the course of 2022.

Simon Rubinsohn, RICS Chief Economist