Halifax, one of the UK’s biggest lenders, has announced that the amount of first time property buyers rose by 22% in 2014 to 326,500, the highest it’s been since the start of the financial crisis in 2007. This is good news, as Halifax’s mortgages director Craig McKinley emphasised: “First time buyers are vital for a properly functioning housing market.”
There are several reasons for this increase (of over a fifth in just a year); the most pertinent of which is arguably the cheap mortgage rates we’ve been seeing of late. Towards the end of last year HSBC capped off a trend of lowering rates offering a five-year mortgage plan with a fixed-rate of 2.48%. On average in 2014, first time buyers were paying out around 32% of their annual income on their deposit, which is significantly lower than the equivalent figure for 2007 which stood at 50%.
2014 also saw an increase in the availability of larger mortgages, where buyers could borrow in excess of 90% of the value of the property. Although, Halifax’s spokespeople were somewhat remiss regarding the fact that a good third of those taking out such large mortgages were very much open to the risk of ever-rising interest rates.
Another important contributing factor was shrinking deposit costs, which Halifax announced went down by 7% over the last 12 months. In 2013, the average first time buyer was paying a deposit of £31,582, compared with £29,218 in 2014, amount to a drop from 20% to 17% of the property price – still higher than the 10% we saw in 2007.
This was reinforced by government schemes like Help to Buy, which allowed buyers to pay a deposit equal to as little as 5% of the selling price of the property by offering equity loans and mortgage guarantees to help first time buyers make up any shortfall.
All of this, added to the increase in job prospects and the general positive trend in the UK economy that we’ve seen in the last quarter (at least) is summed up nicely in a statement from the aforementioned Mr McKinley that “Improving economic conditions and rising employment levels have boosted confidence among those thinking about getting on to the housing ladder for the first time.”
Interestingly, we have still seen house prices go up rather significantly in the last year. Indeed, although we saw house price growth slow towards the end of 2014 (dropping by almost 1% from June-November), the average house price for the year was still at a record high of £189,388 – up 8.5% from 2013. The average cost for a first time buyer went up by 9% to £171,870 from 2013-14. Affordability prevailed however, thanks to the aforementioned cheap mortgages, cheap deposits and increased job prospects that first time buyers were met with over the last year.
We must also look at the regional breakdown of these statistics though. In London, where house prices for first time buyers were up to 11 times the average wage (as was the case in the borough of Camden), Halifax data showed a significant amount of reliance on parental aid by newcomers to the property ladder when paying deposits. This was far less prevalent in, say, Northern Ireland, where prices were as little as three times the average wage. Indeed the average deposit cost in London in 2014 was £79,000, compared to Northern Ireland’s average of just £17,000.