First-time buyer numbers up 40% in August
First-time buyer numbers rose by 40% in the year to the end of August and are now 1% higher than they were in August 2007, according to Connells Survey & Valuation.
But some housing commentators urged caution, amid fears that some buyers are at risk of falling into negative equity.
August is typically a slow month for the housing market, with Connells typically seeing 4% fewer new buyer valuations in August than July over the last five years. But this August there were 4% more first-time buyer valuations than the previous month.
All residential valuations were up 39% last month, compared to August 2012, and up 1% on July 2013. Home mover valuations rose almost as much as those for first-time buyers at 3% between July and August, and up 32% year on year.
Connells said remortgaging activity experienced the largest slowdown in August, with a 4% monthly fall, but it pointed out valuations in August were still 49% higher than a they were in August 2012.
Buy-to-let valuations dipped slightly in August – by 2% compared to July – but the seasonal decline was less dramatic than the 7% monthly drop seen a year earlier. And on an annual basis, there were 33% more buy-to-let valuations in August than there were 12 months earlier.
John Bagshaw, corporate services director at Connells, said: "The UK housing market went into hibernation five years ago, and we’ve had to wait a long time and work through considerable developments to see some significant positive trends emerging since. Helped by the Funding for Lending Scheme and Help to Buy, thousands of new buyers are overcoming huge obstacles from wage freezes, inflation and lower saving rates, turning long pent-up dreams to buy into reality."
Commenting on the outlook for the first-time buyer market, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "The mortgage guarantee element of the Help to Buy scheme, due to be introduced in January, will enable first-time buyers with just a 5% deposit to access competitive mortgage rates when buying a period home as well as a new-build so is likely to be incredibly popular. We expect to see more first-time buyers as a result of this.
"However, it's important not to get carried away. Any increase in the number of first-time buyers is from a very low base and there is a long way to go before we can say that the market has recovered."
Property expert and independent home buyer Henry Pryor, is even more cautious: "If you run a free bar at a party then some people are going to get drunk. House prices are fuelled by cheap credit and the government seems determined to keep credit cheap at least until the next election in 2015.
"First-time buyers, the foundations of the housing market had been struggling to find the necessary larger deposits needed to qualify for a mortgage. Help to Buy has to some extent in phase 1 (and will certainly from January), mean that they don't need to find typically 25% and can therefore buy something today that they would otherwise be unable to afford.
"Just as too much free drink leaves a hangover, so it may well be when eventually these initiatives are withdrawn. Not only will future first-time buyers find themselves having to save for longer before they can buy but values are more than likely to fall back leaving those buying today with a pretty grim housewarming present – a dose of negative equity."
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.