Is Now the Right Time for First Time Home Buyers?

10 March 2016

A recent report on First Time Buyer Opinion, pulled together by Right Move and Reeds Rains, demonstrates that there is significant activity in this sector of the housing market, but perhaps their ideas about what they would accept as their first property has changed.

Interestingly, more than half of the first time buyers surveyed said they would consider buying a former army barracks, a school or a church so they can get onto the property ladder.

With the Bank of England interest rates staying put at 0.5% and no signs of any promised movement upwards, first time buyers may be feeling some positivity which is fuelling a definite surge in first time buyer purchases.

Statistics show that first time buyer purchases are up nearly 40% in the last 12 months, from 20,100 in January 2015 to 27,900 in January 2016. There is no doubt that the increase in demand from first time buyers is having an impact on the property market, with average house prices on the rise too.

In January 2015, the average UK house price was £146,952 but this has risen nearly 13% in twelve months, to £165,945.

So with the increase in average house prices, why is the first time buyer market so warm at the moment? Recent surveys of tenants show real optimism in their ability to get onto the property ladder despite the challenges of it being a seller's market and the 12.9% increase in prices.

Now only 10% of renters believe they will never be in a position to buy a property, down from an average of 12.5% in 2015. Oddly, even though deposit amounts have increased (up by 6%) and property prices are up, 94% of all current tenants say they still want to own their own home.

Another issue which should dampen first time buyer appetite is that the Loan To Value figure, also known as LTV, is falling. This means that first time buyers can't borrow as much against the value of the property. This in real terms means that first time buyers now have to pay more at the point of purchase rather than spread across their mortgage lifetime. Although the average LTV seems to be falling, there are still a large number of high LTV mortgages available now, which completely disappeared after the global financial crisis back in 2007/2008.

This alongside the continued rock bottom interest rates seems to be driving the positivity around first time home buyers.

The Help to Buy scheme that was introduced in 2013 was designed to boost the UK housing market and offer support to first time buyers to get onto the property ladder. With only 9 months left to take advantage of the scheme, this does not appear to have made much of impression on first time buyers, with well over a quarter of buyers surveyed saying they had never heard of it and nearly half of all first time buyers saying it had made different to their plans.

As is always the case in the housing market, prices are driven drastically by region with the average price of a first time buyer purchase in London at £344,418, compared to the average first purchase price in Northern Ireland, which comes in at less than £100,000 (£92,665) and the North East of England just north of £100,000 (108,395).

Geographical location is set to continue to have an impact on the affordability of property in the UK, but first time buyers appear to be keen at the start of 2016. This will be an interesting trend to follow and track throughout the rest of 2016.

Another important mechanism for first time buyers to get onto the property ladder is the shared ownership scheme. You can choose to invest in a portion of a property along with a housing association, who will own the rest. You will usually pay rent on the portion owned by the housing association, but the scheme is a valid way of purchasing a property and getting on the housing ladder without paying the market price.

In fact, from April 2016, anyone who has a joint income of less than £80,000 outside of London or £90,000 inside London, can now apply under the shared ownership scheme so 2016 really could be a good time to get on the housing ladder as a first time buyer.

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