While the wider mortgage market has been fluctuating because of the EU referendum, First-time buyers are having to pay a record amount to purchase their first home, according to estate agents Your Move & Reeds Rains.
May saw first-time buyers pay an average of £173,282 to get onto the housing ladder, up 2.7% from £168,656 in April and 15.8% more than the average of £149,645 seen in May 2015. First-time buyer house prices have now risen by over £23,000 in the last twelve months and current average prices paid are the highest on record.
Across the market as a whole, house prices dipped in May in anticipation of the EU referendum on 23rd June, with the latest Your Move House Price Index showing house prices in England & Wales slumped 0.4% month-on-month in May. But the bottom of the market has defied this trend fuelled by unwavering first-time buyer demand.
Completed first-time buyer sales totalled 24,900 in May, just 0.8% lower than the 25,100 seen in April, even as first-time buyers were held back by a lack of homes on the market ahead of the EU referendum. The overarching trend remains strong, with first-time buyer numbers 13.2% higher than the 22,000 seen in February and 5.1% higher than a year ago.
Adrian Gill, director of estate agents Your Move and Reeds Rains, said: “May saw a crunch in the number of homeowners putting up a ‘for sale’ sign as many sellers held back to see the result of the EU referendum. But Brexit worries haven’t dented first-time buyers’ appetite to own their own home. Many still want to capitalise on the record low mortgage rates available at the moment which mean that monthly mortgage repayments are increasingly affordable.
“The Brexit result won’t change the fact that huge numbers of aspiring first-timers want to buy a first home, and lots won’t want to wait out the two years until the renegotiations over the EU have been completed. In the short-term, the wider market wobbles may benefit first-timers, giving them the leverage to negotiate harder and get a good deal on purchase price. Canny first-timers will use any Brexit-lull as a chance to snap up a good deal and get on the housing ladder.
“New builds still have a part to play in absorbing first-time buyer demand. But the biggest and most immediate improvement would come from stimulating more activity from the top to the tail of the housing market. Just as many first-timers can’t find the one bed flats or two bed houses they are typically looking to buy, some second steppers can’t find the three bed homes they may want to move into to suit their growing families. Even last-time buyers looking to downsize and free-up their larger family homes are often struggling to find suitable properties for sale.
“Housing chains are clogged up right the way through from first-time to last-time buyers. The government should support our sellers, making it cheaper to move house and adding much needed energy back into the market. Houses for sale are getting snapped up very quickly in this climate but many more sellers are needed.”
The average mortgage rate for first-time buyers has slipped further in May to 3.08% – a new record low – following a fall of 0.37 percentage points over the past year.
Despite the climbing overall cost of a home, these cheaper rates mean mortgage repayments have not increased significantly as a proportion of first time buyer’s income. As of May, mortgage repayments accounted for 21.1% of income, just 1.7 percentage points more than a year ago.
Meanwhile, the average first-time buyer deposit currently sits at £27,669, up 12.8% (or £3,146) from £24,523 a year ago. When compared to the average first-time buyer income of £39,651, this represents an extra 29 days’ worth of salary. As a proportion of income, the average deposit has climbed 6.1 percentage points compared to May 2015.
Gill said: “High LTV mortgage options like the Help to Buy schemes are giving more first-time buyers a fighting chance of getting on the housing ladder. But putting together a chunk of cash to put down on a property remains problematic for many. Some first-timers are helped by the Bank of Mum and Dad, or through an inheritance or gift from a family member. Others are forced to move home with their parents while they save. But most continue to struggle to save while paying a considerable proportion of their income on rent.
“This highlights the importance of the rental market to first-time buyer prospects. Maintaining a healthy private rental sector (PRS) is absolutely key to achieving homeownership aspirations. The government’s current agenda, managing landlord demand by taxing the PRS more heavily, is likely to filter through to tenants in the form of higher rents making the challenge of saving for a deposit even more difficult. The new PRS policies may well hurt the very demographic they are trying to help – first time buyers.”
In four UK regions the average first-time buyer property price now tops £150,000, including the East of England (£161,088), the South West (£165,068) and the South East (£229,828).
London remains the most expensive region to buy a first home. First-time buyers in the capital now pay an average of £338,074 to get on the housing ladder, saving an average of £84,138 as a deposit, and taking out a mortgage of £253,936 on average. Despite these high costs, a total of 11,700 first-time buyers in London purchased properties in between March and May this year.
The North East and Northern Ireland offer the cheapest options for first-time hopefuls. The average first-time buyer house price in the North East – currently the cheapest region – sits at just £106,022, less than a third of the cost of the average price paid in London. These cheaper costs allowed 3,300 first-timers to purchase properties in this region between March and May this year.