Stamp Duty relief and mortgage availability ‘boosting first-time buyer purchasing power’

First-time buyers are set to be the largest buying group this year.

Research by Zoopla found that first-time buyers are using their wider ‘purchasing power’ from longer mortgage terms and Stamp Duty relief to buy larger homes.

The portal said first-time buyers accounted for 36% of all UK housing sales and half of all mortgages for home purchase in 2018.

There is also no evidence that first-time buyers are rushing into buying the typically smaller, lower value homes in order to force their way onto the market, according to the research.

Zoopla said the most popular type of home first-time buyers enquired about last year was three-bedroom houses rather than the traditional flats.

In 2018 first-time buyers were purchasing property with average prices around 8-15% lower than the regional average for all housing. This contrasts with pre-2007, when they were buying homes 20% to 25% below the regional average.

Zoopla said first-time buyers are still facing the hurdle of raising a deposit.

This is made harder by tougher application rules under the Mortgage Market Review which include stress tests to see if they can afford potential higher rates.

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).

However, many are helped by the lower costs from Stamp Duty reliefs, an increase in higher loan to value (LTV) mortgages and paying over a longer term so they have cheaper repayments, the research said.

UK Finance data shows that mortgages at or over 90% LTV accounted for 19% of all mortgage lending in the first quarter of 2019 and has been increasing.

Zoopla said this, coupled with Stamp Duty relief and the shift of Help to Buy to first-time buyers, would help this cohort keep its place as the main buying group.

Richard Donnell, research and insight director at Zoopla, said: “First-time buyers have been the driving force behind the housing sales market in recent years. Lower mortgage rates and improving mortgage availability have supported the growth in numbers across the country.

“Despite increased barriers from high house prices in southern England and mortgage regulations, the appetite to buy their first home remains strong.

“Whilst the outlook is more challenging in London, growth in first-time buyer volumes is expected to be driven in regional markets where affordability remains attractive, supported by greater availability of higher loan to value mortgages.

“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.

“Changes to the Help to Buy scheme in England from 2021 could have an impact on the 14% of first-time buyers using this scheme to buy their first home.

“However, the impact could be offset by higher loan to value lending and newer forms of tenure such as shared ownership.

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

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