First-time Buyers

Over a third of all property purchases are by first-time buyers

Christina Hoghton
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Christina Hoghton

First-time buyers are still finding a way to access the property market, despite significant hurdles

First-time buyers will be the biggest buyer demographic this year, according to Zoopla.

The property portal said that numbers of first-time buyers have been rising strongly since 2010, unlike other buyer demographics which have fluctuated up and down over the last eight years.

It predicts that in 2019, they will account for 36% of sales.

Regional divergence

However, growth in first-time buyers will be weaker over the next 18 months in the South East, offset by greater growth in other regional markets where affordability pressures are less of a constraint.

Richard Donnell, director at Zoopla, said: “The greatest potential for further growth in first-time buyer numbers is in the North West and Scotland, where growth has been most robust recently.

“First-time buyers will be the largest buyer group this year and there is no evidence that the appetite for home ownership will diminish any time soon.”

Affordability hurdles

Deposits remain one of the greatest barriers to accessing home ownership, said Zoopla, with the size of the average first-time buyer deposit around 15% of the value of a property – double the level before the global financial crisis.

Schemes such as Help to Buy have supported those with small deposits and 14% of all first-time buyer sales have been using Help to Buy. The growing availability of higher loan to value mortgages at or over 90% is also supporting first-time buyer numbers by reducing deposit levels.

New mortgage regulations designed to stop households taking on high levels of debt have proved another barrier. In order to get a mortgage the buyer has to prove to the bank they can pass an affordability test, paying a higher ‘stressed’ mortgage rate to ensure they can manage an increase in mortgage rates. This stressed rate is often closer to 7% while the typical product rate is around 2% today. In other words they need to show they can afford the mortgage if rates were to rise significantly.

Based on a mortgage product rate of 2.4%, first-time buyers in London and Great Britain (excluding London) need an income of £53,000 and £20,000 respectively to buy a property. However, when a stressed rate is applied the income required increases to £92,000 (London) and £36,000 (rest of Great Britain).

Donnell added: “Mortgage regulations introduced after the global financial crisis to ensure households do not become over-indebted mean affordability testing creates an additional hurdle. The impacts of these changes have been felt most in the highest value housing markets and London is the region where first-time buyer numbers have fallen back over the last four years.

“Faced with affordability constraints, first-time buyers have two options: shift focus to buy smaller, less-expensive homes or take advantage of the increasing availability of high loan-to-value mortgages.”