First-time buyers squeezed out as deposit costs rise

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1 Under embargo until Friday 3 rd July June 2015 First-time buyers squeezed out as deposit costs rise May sees 22,200 first-time buyer (FTB) transactions as sales drop 18.1% compared to 27,100 last year This makes May 2015 the lowest May for first-time buyer transactions in three years first-time buyer deposit climbs 4.2% year-on-year to 25,134 as purchase prices rise Comes despite rock bottom average mortgage rates and repayments falling as a proportion of income Monthly Transactions Purchase Price LTV May , , % April , , % 1 month change -0.9% +0.3% -0.2 (from 83.8%) 3 month change +16.2% +3.9% +1.0 (from 82.6%) 1 year change -18.1% +6.7% +0.4 (from 83.2%) This year (2015) witnessed the lowest May for first-time buyer completions in three years as the election temporarily stalled the market and deposits costs climbed, according to the latest First-Time Buyer Tracker from Your Move and Reeds Rains. The number of first-time buyers completing property transactions in May has fallen by over 18% compared to the same time last year. There were 22,000 transactions in May 2015, 18.1% lower than May 2014 s figure of 27,100. May s figure is 0.9% lower than April s figure of 22,400 first-time buyer completions. May did see significantly more sales than three months ago (+16.2%), but February s figure of 19,100 represents a seasonally quiet time of year. On top of the uncertainty surrounding the election, first-time buyers are facing the need for growing deposits both in real and relative terms. As of May, the average deposit for a first-time buyer stands at 25,134, up 1.7% on the previous month and 4.2% on a year ago. Moreover, the average deposit as a proportion of income is on the rise for the first time 1

2 in four months up one percentage point month-on-month to 64.4% of average income in May. Adrian Gill, director of estate agents Your Move and Reeds Rains, comments: Despite record-low mortgage rates, a growing economy and the start of significant wage growth, the uncertainty surrounding the election seems to have triumphed, albeit momentarily. Many pundits predicted a hung parliament, and this political confusion seems to have caused many would-be first-time buyers to keep their powder dry in the run-up to May until it became clear what the government was and what its housing policies were going to be. A second and more permanent root to the disappointing first-time buyer figures is the challenge of cultivating a deposit. Many first-time buyers are still on tight monthly incomes, struggling to save while savings rates stay so low. Meanwhile, deposits are rising primarily as property prices continue their seemingly unstoppable upwards march. This is wholly due to a lack of housing supply versus a stack of housing demand. If we want to see property prices stabilise and deposits fall as proportions of income, the Government must address the housing supply problem, for which there is only one solution: build more homes. First-Time Buyer Affordability deposit Deposit as proportion of income mortgage rate Mortgage repayment as proportion of income May , % 3.46% 19.7% April , % 3.56% 19.9% 1 month change +1.7% month change -2.4% year change +4.2% HOUSE PRICES AND FIRST-TIME BUYERS New buyers paid more on average for their first home in May than in April, with the average first-time property value up 0.3% on a monthly basis to 153,348. This figure also represents an increase of 3.9% on three months ago and 6.7% on a year ago. Furthermore, this month s average house price represents the highest average in 2015 so far. The news comes alongside a 3.46% average mortgage rate for first-time buyers in May the lowest in over five years and an increasingly high average loan to value (LTV) ratio for March s first-time buyers of 83.6% up 0.4 percentage points on a year ago and 1.1 percentage points on three months ago. Adrian Gill continues: While buyers may grumble, rising property prices are a positive sign. They demonstrate that the continuing fall in the average mortgage rate combined with the brightening economic outlook has left plenty of demand in the first-time buyer housing market. This is despite May s threat of a highly uncertain election outcome. Schemes such as the Help to Buy ISA have encouraged all sorts of buyers to overlook temporary political uncertainties and save up to make the dream of home-owning a reality. REGIONAL DIFFERENCES London is the most expensive place for first-time buyers, with average house prices standing at 303,574 in the three months to May The second-most expensive place for first-time buyers was the South East, where the average 2

3 house price over the same period was 201,292. Nationally, the average price for a first-time home stood at 155,356 in the three months to May The North East and Northern Ireland are the least expensive regions for first-time buyer properties, with average prices standing at 112,388 and 107,906 respectively. On average, Londoners put down a deposit of 69,040 in the three months to May 2015 more than five times the size of the average first-time buyer deposit in the North East ( 13,283). Despite having the second-highest average purchase price, the South East only possessed the fifth-largest average deposit cost. The East of England is the region with the second-largest deposit, coming in at an average of 49,135 in the three months to May First-time buyers in Wales need the third-largest deposit ( 27,668), despite being one of the less expensive areas in the country for first-time buyers. Region Purchase Price deposit mortgage Number of FTBs* London 303,574 69, ,533 10,100 South East 201,292 26, ,848 13,900 East of England 183,285 49, ,151 2,500 South West 164,338 26, ,465 5,500 UK 155,356 24, ,918 67,400 West Midlands 141,271 21, ,770 5,600 East Midlands 135,782 20, ,489 4,900 North West 130,899 19, ,726 6,400 Wales 128,280 27, ,612 2,700 Scotland 118,726 23,793 94,933 5,900 Yorkshire & Humber 117,292 18,492 98,800 5,300 North East 112,388 13,283 99,105 2,900 Northern Ireland 107,906 13,327 94,579 1,700 Adrian Gill concludes: Almost universal rises in house prices illustrate that the desire amongst Britons to become homeowning is returning to pre-financial crisis levels. What s most interesting, however, are the high deposit expenses in areas outside London. Surging deposits in the Wales and, in particular, the East of England are potential indicators that first-time buyers have a strong appetite to buy in the regions as well as the capital, moving to places where the cost of property and living is lower. This is creating property hotspots outside London where people are willing to put down higher deposits to own property. The optimistic mindset of the housing market is spreading beyond London and across the UK. 3

4 Heat map of first-time buyer purchase prices (3-months to May 2015)* 220, , , , , , , , ,000 *This is the total number of FTBs in the three months to May Based on CML regional data (released 25th February 2015) on the number of FTBs in Q grossed up to reflect growth in FTBs recorded by LSL Property Services between Q and three months to May

5 Examples of First-Time Buyer Properties** North West Scotland North East Two bedroom terrace house Hyde 54,950 One bedroom villa Auchterarder 64,995 Two bedroom terrace house Ferryhill 44,950 Northern Ireland Three bedroom house Carrickfergus 42,500 Yorkshire & Humber Two bedroom apartment Hull 36,000 West Midlands Two bedroom apartment Bromsgrove 60,000 East Midlands Three bedroom house Swadlincote 65,000 Wales Two bedroom house Rhyl 65,000 East Anglia Two bedroom house Great Yarmouth 70,000 South West One bedroom apartment Camborne 55,000 South East One bedroom apartment Waterlooville 90,000 London Two bedroom flat Romford, 160,000 ** Properties on the market with either Reeds Rains or Your Move estate agents at the time of going to press. 5

6 Transactions Purchase Price LTV Deposit Initial Rate Mortgage Payments as % of income Deposit as % of income Mar-11 15, , % 25, % 21.6% 76.0% Apr-11 14, , % 25, % 21.9% 75.2% May-11 14, , % 25, % 21.9% 75.8% Jun-11 18, , % 25, % 22.4% 75.6% Jul-11 17, , % 25, % 22.2% 74.1% Aug-11 18, , % 24, % 22.2% 72.7% Sep-11 18, , % 24, % 22.0% 72.5% Oct-11 16, , % 25, % 21.5% 75.2% Nov-11 17, , % 27, % 20.9% 80.2% Dec-11 18, , % 27, % 21.3% 80.7% Jan-12 12, , % 26, % 21.0% 78.0% Feb-12 14, , % 27, % 21.3% 81.7% Mar-12 24, , % 29, % 22.5% 84.2% Apr-12 12, , % 24, % 20.9% 77.4% May-12 17, , % 25, % 21.7% 76.3% Jun-12 19, , % 26, % 22.6% 79.1% Jul-12 18, , % 27, % 21.7% 78.5% Aug-12 20, , % 28, % 21.9% 81.0% Sep-12 17, , % 25, % 22.3% 74.2% Oct-12 20, , % 25, % 22.1% 74.1% Nov-12 21, , % 28, % 21.2% 82.3% Dec-12 19, , % 27, % 21.6% 80.6% Jan-13 15, , % 26, % 20.8% 79.2% Feb-13 15, , % 26, % 20.6% 79.6% Mar-13 19, , % 26, % 20.8% 76.7% Apr-13 18, , % 26, % 20.4% 76.6% Mar-00 22, , % 27, % 20.0% 76.9% Jun-13 24, , % 29, % 20.7% 83.2% Jul-13 24, , % 29, % 20.2% 82.3% Aug-13 26, , % 29, % 20.7% 80.5% Sep-13 23, , % 28, % 20.8% 79.6% Oct-13 26, , % 27, % 20.8% 77.1% Nov-13 26, , % 27, % 20.9% 76.4% 6

7 Dec-13 26, , % 26, % 21.8% 74.6% Jan-14 22, , % 25, % 21.0% 70.3% Feb-14 22, , % 24, % 20.8% 68.9% Mar-14 24, , % 24, % 21.9% 68.6% Apr-14 24, , % 23, % 20.8% 64.3% May-14 27, , % 24, % 21.0% 66.1% Jun-14 29, , % 26, % 22.2% 70.6% Jul-14 28, , % 25, % 20.8% 66.2% Aug-14 27, , % 26, % 20.8% 69.9% Sep-14 26, , % 26, % 21.1% 68.0% Oct-14 28, , % 25, % 20.8% 66.2% Nov-14 25, , % 25, % 20.3% 67.3% Dec-15 26, , % 27, % 20.4% 71.1% Jan-15 19, , % 26, % 19.5% 70.7% Feb-15 19, , % 25, % 19.6% 67.6% Mar-15 23, , % 25, % 20.2% 65.5% Apr-15 22, , % 24, % 19.9% 63.4% May-15 22, , % 25, % 19.7% 64.4% ENDS Press contacts Tora Turton, Instinctif Partners, Darius Meehan, Instinctif Partners, Methodology LSL uses the extensive monthly data from registered first-time buyers in its estate agency brands Your Move and Reeds Rains to update the CML s first-time buyer data before the CML s RMS data is published. The term first-time buyer is here denoted by the purpose of a buyer s registration, rather than their LTV. LSL LTV data has been applied to CML price purchase data to calculate deposit and affordability information. Sentiment and salary data are derived from a survey conducted by LSL. The figures are not mix or seasonally adjusted, and are subject to revision as more data becomes available. This First Time Buyer Tracker has been prepared by Instinctif Partners for LSL Property Services. It has been compiled using information extracted from LSL s management information. The copyright and all other intellectual property rights in the First Time Buyer Tracker belong to LSL. Reproduction in whole or part is not permitted unless an acknowledgement to LSL as the source is included. No modification is permitted without LSL s prior written consent. 7

8 Whilst care is taken in the compilation of the First Time Buyer Tracker, no representation or assurances are made as to its accuracy or completeness. LSL reserves the right to vary the methodology and to edit or discontinue the First Time Buyer Tracker in whole or in part at any time. 8