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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