Bob Hunt is chief executive of Paradigm Mortgage Services
One of the main reasons the mortgage market has faltered over the past few years has been the lack of first-time buyer activity, with many potential owners ‘locked out’ of the market by a shortage of affordable housing, overbearing deposit requirements and if that weren’t enough too often inflexible or draconian underwriting that has seen applications rejected on the most frivolous grounds. It takes a determined attitude to become a new home owner and borrower in today’s mortgage market and this is no better demonstrated by the difficulties FTBs face.
Notwithstanding this, there have been positive signs in recent months that fresh blood is returning to the market, with the Council of Mortgage Lenders reporting that the number of first-time buyers in London and Scotland has risen to their highest levels in nearly three years. Admittedly, the modest figures posted in recent years won’t have taken much beating, but it is an encouraging sign that things are headed in the right direction.
Focusing on the property market in the capital first, the number of first-time buyers increased to around 10,000 in Q3 2012, a 25% rise from the previous quarter. The average first-time buyer household in London had an income of £50,000, borrowed an average of 3.5 times their income with mortgage payments typically consuming 21.3%. There will be those that argue that the superior salaries on offer to Londoners compared to the rest of the country is aiding this recovery, but this is of course potentially cancelled out by the fact property is so much more expensive in the capital. The typical age of first-time buyers (31) in London is also two years higher than the national average, suggesting that potential homeowners need more time to accumulate suitable deposits.
In terms of comparisons, while the London property market sometimes posts results different enough from the rest of the UK that it might as well be a different country, it is also worth pointing out that if new buyers there can overcome the various obstacles, then it should be achievable for potential homeowners in other regions. In any case, judging by the CML figures it is encouraging to see the first-time buyer recovery is not strictly limited to the capital, with signs of improvement also noticeable north of the border. The number of first-time buyer loans advanced in Q3 in Scotland represented a 6% increase from the previous three-month period and the largest number since the final quarter of 2009.
A significant driver of first-time buyer activity is confidence, so if the news that new homeowners are returning to the market in London and Scotland reaches other parts of the UK, then we may see this positive sentiment spread. A number of economists and market commentators have made encouraging predictions for 2013 so hopefully this manifests itself in first-time buyers feeling confident and determined enough to take their first step on the property ladder.
Banks regaining their lending appetite and the Funding for Lending scheme both have a significant role to play in enticing first-time buyers to take the plunge, but the bottom line is that potential homeowners still won’t buy property unless they feel reassured by an improving economy and feel secure enough in their jobs. With the early signs suggesting that all of these factors may come to bear in 2013, then we could soon see first-time buyers emerging out of the woodwork across the country.
