First Time Buyers Rescue the Housing Sector from Brexit Doldrums: April 2019

02/05/2019
There's no doubt that the housing market in England & Wales is 'in the wars' but is there a shining white knight in the shape of the first time buyer?

We can't hide from reporting the sad - and continuing - facts of sales volumes in the country being parlous and on life-support in London and falling house prices, but there are at least some encouraging signs from the first time buyer sector, which represents a large part of hopes for the future.

[All statistics which follow are the most recently available figures from the Land Registry and the Bank of England unless otherwise stated.]

England & Wales: largest price decrease period since 2010 and lowest yearly %age rises since 2012

England and Wales suffered the lowest sustained month-on-month price decrease period – 6 months – since Sept 2010. Regarding the year-on-year picture, a rise of 0.6% for February represents the lowest year-on-year percentage rise since April 2012. The average price overall, at £238,176, is 2.3% below last August's highest ever mark of £243,856.

Volume fall for 12 of the last 13 months
In December, the most recent month for which sales volume figures are available, these fell 23.2% month-on-month and 19.7% year-on-year, to 65,151. Volumes have now been falling year-on-year for 12 months out of the last 13.

London - prices continue to dive

For London, prices have continued to decline. Prices up to and including February 2019 have been falling month-on-month for four months in a row and for six out of the last seven and year-on-year for 8 months in a row and for 11 out of the last 12. The average price overall, at £459,800, is only barely above February 2016's £457,759 and nearly 6% below July 2018's peak of £488,527.

London's sales volumes decrease for longest period since the crash
Year-on-year, London's sales volumes have decreased for the 16th month in a row and by 26%: there hasn't been a depression like this since the property crash.

At just 5,872, sales in December (for which the most recent figures are available) fell 24% month-on-month (and for the second month in a row and the ninth month out of the last 16).

Real wages falling

An additional gloomy metric is that of real wages falling.

Inflation rose 2/3 of 1% month-on-month for February, nearly cancelling out the previous month's rare fall of 0.75% and rose 2% year-on-year, very similar to the previous month's 1.8%.

Average weekly salaries fell back by £1, however, a 0.2% fall so the combined picture is one of real wages falling, something which will neither please house sellers nor the more impoverished potential buyers.

Loan approvals: steadyish remortgages don't make up for falling mortgages

Remortgages have remained steady – there were 49,713 in March, a 5.3% rise year-on-year and a 0.9% rise over February, however new mortgage approvals, always examined as a barometer of house purchasing activity, fell a material 4.8% compared to February to 62,341 and this was also a 2.1% fall year-on-year.

So where exactly is the good news? Read on...


First time buyer mortgage completions up 4.1% year-on-year

Although mortgage approvals as a whole were down, as described, the number of first-time buyers completing mortgages increased by 4.1% compared to last year, according to banking and financial trade association UK Finance, quoted in media reports.

UK Finance’s mortgage lending trends, published in April, showed that 24,800 first-time buyers took out a mortgage in February 2019 — 4.1 per cent more than for the same month in 2018. The trade body stated this was the fifth consecutive month of year-on-year growth in first-time buyer numbers.

"The number of mortgages being taken out by first time buyers has continued to approach pre-financial crisis levels in recent months" - Robert Gardner, chief economist, Nationwide


Buy to let mortgages down...but remortgages up

Additionally, although buy to let mortgage completions fell year-on-year for February, by 7.7%, remortgages were up 2.1% indicating at least some consolidation in the market and maintenance of existing properties.

Read on for tips on how first time buyers can maximise their position within the current market...

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First time buyers - time to consider discount mortgages and gigantic loan terms?

If indeed the number of first time buyers in the property market is approaching levels seen before the last financial crisis even as house prices fall, what strategies might they take to bolster their positions?

Discount Mortgages - competition for standard fixes?
Some media reports have compared the performance of 2-year discount mortgages for first time buyers versus the more standard 2-year fixed rate mortgages. 

The initial plus is that they can often be cheaper at the start and might remain so if all other things remain equal. They work by charging a variable interest rate which is at a fixed discount to the lender's standard variable rate (SVR).

First time buyers - and any other interested parties - must understand, however, that the movements of a bank's SVR can be influenced by much more than the Bank of England's base rate. In fact the bank can increase its SVR 'on a whim'. Additionally, many of these products have a floor beneath which the rate does not drop even if the SVR drops.

Additionally, continuing Brexit uncertainty has to be taken on board because extreme outcomes cannot be ruled out at this stage - the Bank of England might jack up interest rates to choke off inflationary pressures (for example from price rises due to high import tariffs) which would almost certainly pull up all lenders' SVRs, affecting all related products.

That said, most often you can exit a discount mortgage without having to pay a hefty early repayment charge - a considerable advantage over fixed-rate mortgages, you can normally exit these products without huge penalties - and, given that SVRs are arleady currently at historically high levels, one might take a position that they can only fall.

Gigantic loan terms
Even though the average age of a first time buyer has increased in recent years, mortgage lenders have been slowly adjusting to various factors such as the increasingly older retirement ages and have started to offer some mortgage products with increasingly larger terms and higher maximum ages.

Santander has extended the maximum loan term on its first time buyer mortgages to 40 years, a whole 15 years longer than the traditional 25-year term, something which can only be of assistance to first time buyers in general, particularly if they're trying to buy in more expensive areas such as the South East and London.

That said, given that first time buyers are getting older, there presently might be a smallish window of opportunity in terms of years to be eligible to take up these extended term mortgages.

Reduced competition from landlords...but higher rents?
First time buyers arguably have a few factors on their sides at present. Property prices are falling and employment, according to many experts is practically at full employment (4%), something which hasn't occurred since the post-war period.

Alongside Help to Buy and deposits from the Bank of Mum and Dad, there's also decreasing competition from landlords as increasing numbers of buy to let landlords leave the sector. 

This, however, is undoubtedly a two-edged sword: fewer landlords mean hardening or even rising of rents in the rental stock which remains, which makes deposit saving from would-be first time buyers more of a challenge.

Local focus - Guildford's major house-building plans...and controversy

Guildford Borough Council has created a Local Plan which might deliver up to 14,602 homes overall and 10,678 homes by 2034.

Some 2,000 homes are earmarked for the former Wisley Airfield site, with a further 1,500 at Blackwell Farm off Hog's Back and 800 in the town centre.

The plans, however, have not met with universal approval, as one might expect, because many living in the locale are resistant to any reduction in green belt land.

The council said the following villages had been removed from the green belt: Chilworth, East Horsley, Effingham, Fairlands, Flexford, Jacobs Well, Normandy, Peasmarsh, Ripley, Send, Send Marsh, Burnt Common, Shalford, West Horsley and Wood Street Village.

Opponents have the option to lodge a High Court appeal against the plans.

NAEA report: lowest March on record for property supply

According to the National Association of Estate Agent's (NAEA) most recent housing market report, the supply of available properties hit the lowest level on record for the month of March.

An average of 37 properties were available to buy in March, a nine per cent increase from 34 in February. Year-on-year, the number of available properties decreased by eight per cent from 40 in March 2018.

Increase in demand

The NAEA reported that the number of house hunters registered per estate agent branch rose by 17 per cent in March, from 252 to 296. This is a similar level to January this year, when 297 prospective buyers were recorded per estate agent branch.

Sales to first-time buyersdecreased while the number of sales agreed per branch remained the same

Despite the good news about first time buyers and mortgage approvals discussed above, and after an increase in the number of sales made to the group in February, sales fell from 30 per cent to 26 per cent in March.

That said, this still remains a relatively large proportion and is the same level as recorded in March 2018.

But...no surprises sadly...81% of properties sold for less than the original asking price. This disconnect is proving resilient.


Andrew Boast, co-founder of SAM Conveyancing, said:


"Housing market professionals in England and Wales must be inured to the continuing stresses of low sales volumes and decreasing average prices by now and the month of April proved to be no exception."

"At present, one of the certainties is continuing Brexit uncertainty with frankly no clear end game being announced from the powers-that-be in Westminster. But the ray of light in April is the increase in first time buyer mortgage approvals."

"Arguably it is the time for the intrepid first time buyer and, although no strategy is foolproof, there are an increasing number of avenues and options they can take."

"Much of the press continues to speculate feverishly about possible Brexit outcomes and changes of government and while any of these might greatly alter housing market conditions, there doesn't appear to be any quick change on the immediate horizon. We therefore wish luck to all home buyers and sellers in the current clime...and a return to some semblance of competency from all parties in Westminster."


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