Rising house prices failing to deter first time buyers

16-Jun-2014

First time buyer mortgages are up by a third, according to new findings. A report published by the Council of Mortgage Lenders (CML) revealed that the number of loans to home movers increased in April by 11 per cent compared to March and by 30 per cent compared to the same time last year.

It showed that the average loan for first time buyers was £121,500 in April, up from £118,750 in March.

Commenting on the findings, Paul Smee, director general of the CML, said: "First time buyers and home movers continue to be key drivers in the growth of the market and despite fears that MMR [mortgage market review] preparations may hinder this momentum, we have seen a continued year-on-year upward trend every month in 2014."

The CML figures revealed that in total, 53,200 loans were advanced for house purchases, up six per cent compared to March. The value of these loans totalled £8.8 billion, a rise of 11 per cent on March.

At the same time, there was also a rise in the number of people remortgaging their homes, with the total number of consumers choosing to do this rising by six per cent compared to March. 

Affordability

Despite the rise in the number of first time buyers taking out loans, there was a drop in affordability.

CML figures showed that first time buyer affordability worsened fractionally, with new buyers typically borrowing 3.42 times their gross income, compared to 3.41 in March. 

The typical loan size for first time buyers was £121,500 in April, up from £118,750 in March. This represented the highest monthly average advance for first time buyers on record. 

These findings were supported by the Royal Institute of Chartered Surveyors, which reported that there had been a drop in the number of people able to buy homes in the capital.

The group predicted a price slowdown in London and the south-east to be followed by the south-west. In fact, a number of property consultants across the country have highlighted the drop in affordability.

Richard Sexton, director of e.surv chartered surveyors, said: "First-timers are borrowing more than a year ago, partly in response to rising prices, but also because larger mortgages have become more accessible. High loan-to-value lending has increased 40pc compared to twelve months ago."

House prices

High prices are thought to be one of the main reasons for the drop in affordability.

The latest LSL/Acadata index showed that average house prices in England and Wales have increased by £21,000 or 8.5 per cent in a year, taking the typical price of a home to £266,013.

Its findings showed that May was the 11th month in a row when average prices increased with a monthly rise of 0.9 per cent.

Conclusion

Despite the rising house prices and drop in affordability, one thing that all of the research seems to show is that this has not prevented first time buyers from purchasing property.

With first time buyer mortgages up by a third, demand for housing remains fairly robust and shows no sign of slowing down soon.

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