Date Published 29 March 2017
February saw first time buyer share of the market climb from 28 to 36% according to Connells Survey and Valuation division. This is the highest share of the market since 2011. For first time buyer activity to have been so muted in a market that has been steadily climbing is unusual. A rise in prices normally pushes confidence and brings first time buyers into the fray. Their aim is normally to make the most of capital increases. The real benefit to them in reality is the long term financial gain to be made by chipping away at a mortgage. High interest at the beginning of the term makes only small dents but as time goes on and the capital owed reduces repayments become incrementally larger.
While first time buyers seem to have reappeared Connells report significant reductions in buy to let activity. For the first time in 5 years buy to let mortgages accounted for less than 10% of the market. The government has been seeking to cool this sector and introduced an additional 3% stamp duty charge on second properties, as well as beginning to phase out the relief on mortgages at marginal tax rates. From 2020/21 standard rate of tax relief will be the maximum that can be claimed on mortgage interest payments.
Deposits remain an issue for first time buyers. Lenders will accept 5% but the terms of acceptance are stricter and the interest rate paid higher. It is still worth buying even if the early years carry a premium. Over time the equity will increase both because the capital is being repaid and house prices push upwards. As the equity increases in relation to value the borrowing rates will fall making the proposition more attractive. Of course for most first time buyers the equity is normally used to push themselves up the housing market into a larger property as family size increases. First time buyer activity is not just important for the market today. These become the buyers of larger properties in the future.