First time buyers return despite rising house prices

First time buyers return despite rising house prices

House prices rose by 3.3% and first time buyers returned to the market in their highest number for five years during 2012.

Economic Analysis

12 February 2013

Price movements

Looking at house price movements over the last three months of 2012, Rupert Seggins, an economist with RBS Group Economics, says: "“Of the four major house price indices for the UK, the ONS' figure paints the most positive picture. Taking an average of the ONS, the Land Registry, Halifax and Nationwide (all of whom have their own approaches to compiling these indices), UK house prices grew by 0.5% year on year in the last quarter of 2012. According to the ONS, UK average house prices in Q4 2012 were just 3% below the pre-crisis peak. 

"“London remains the strongest performer, with Q4 prices rising 4.5% year on year, while all other regions apart from the North East, Scotland and Northern Ireland continued to see house prices growing. But Northern Ireland's housing market remains under serious stress. House prices there have fallen in every quarter since early 2008 and are currently 49% of the pre-crisis peak.”"

He expects UK house prices to tread water during 2013, held back by the lacklustre performance of the economy.

Welcome news

However this is likely to be welcome news for first time buyers who came to the housing market in greater numbers during 2012 than any time in the past five years, according to the Council of Mortgage Lenders. A total of 216,200 first-time buyers became homeowners in 2012, the first time the annual total has exceeded 200,000 since 2007, a year-on-year rise of 12% on 2011 when 193,000 loans were advanced.”

The increase is believed to partly due to greater availability of mortgage lending, following implementation of the Government’s funding for lending scheme last summer. Mortgage interest rates have dropped since the introduction of the scheme, which provides low cost money to banks for lending as mortgages and business loans. 

Seggins says: “"Coinciding with this, the average price of a house bought by a first time buyer rose 2.7% year on year in Q4 according to the ONS. While mortgage lending to first time buyers increased in December on the same month of 2011, the average deposits required remain steady at 20% according to the CML."”

However the CML figures also highlight a considerable increase in higher loan-to-value ratios in the last three months of 2012. One in 40 first-time buyers took out a 95% mortgage compared with less than one in 100 a year earlier, and around one in 5 first-time buyers borrowed 90% or more.

First-time buyers, lending and affordability

  Number of loans Value of loans £m Average loan to value Average income multiple Proportion of income spent on interest payments Proportion of income spent on capital and interest payments
December 2012 19,100 2,400 80% 3.28 13.2% 19.9%
Change from November 2012 -11.6% -11.1% 80% 3.24 13.3% 20.0%
Change from December 2011 2.7% 4.3% 80% 3.29 12.2% 19.4%

Source: Council of Mortgage Lenders

The year on year increase reflected growth of 3.4% in England, 2.4% in Wales and 3.1% in Scotland, according the latest data from the Office for National Statistics (ONS). But prices fell by 5.7% in Northern Ireland over the year and the English growth figure was substantially boosted by a 6.4% rise in London and a 3.7% increase in the South East. If these are excluded, UK house prices increased by 1.9% in the 12 months to December.

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