The Return of the First Time Buyer
There are lots reasons to feel positive about the housing market in 2014 but perhaps one of the most encouraging aspects is the ‘return’ of the first-time buyer.
There has always been a lot of talk about ‘first timers’ being the lifeblood of the marketplace and, while this pudding can sometimes be over-egged, it is absolutely vital that we help those trying to get on the first rung of the ladder, ensuring they have the ways and means to become homeowners.
It was therefore particularly pleasing to see the latest figures from Halifax’s First Time Buyer Review which showed a notable increase in the number of home-owning ‘newbies’ over the course of last year. Numbers were up 22% on 2012 and it was revealed to be the biggest annual increase since 2001. It estimated that 265,000 first timers were able to make their property-owning dreams a reality – a considerable improvement on the previous year’s 218,000.
All good news which will perhaps be met with most delight by the Government keen to create a feel good factor in the run up to the election in 2015 and who have put considerable political store in their ability to get the entire housing market moving again, but in particular to help first-time buyers. Many previous schemes unveiled prior to 2012 were designed to help first-time buyers however they were often unduly confusing and were ultimately unable to get the anticipated uptake and success.
In Denham we have seen a surge in demand for property as Help to Buy takes effect and we finally see a scheme which can live up to the hype and deliver against expectations. Just how many of those benefiting from Help to Buy are first time buyers is unclear but it appears that, even though HTB was not specifically aimed at new purchasers, it is this very group that appears to be reaping the rewards of the schemes’ introduction.
Looking at things in an historical context however, we might reserve our excitement. Back between 2003 and 2007 – which admittedly was hardly a ‘normal’ marketplace – average first-time buyer numbers were around the twice the number they are today. However, to my mind, this is not a bad thing. How many first-timers entered the market during those years buoyed by a heady cocktail of freely available credit coupled with less than onerous underwriting practices from many lenders? 100% mortgage? No problem. 125% mortgage? Here you go.
Undoubtedly there will be many who became homeowners thanks to these products, however their ability to continue servicing a mortgage when the subsequent recession hit, will have been severely compromised. I suspect that with house price rises during that period, many new entrants then may still be living in homes currently in negative equity. There is much to be said for a controlled approach to supporting today’s first-time buyers to ensure they are not over-stretched in relation to their mortgage and to stress-test their affordability levels now and in the future given the inevitable increase in interest rates. Although borrowers have enjoyed a base rate of just 0.5% for a number of years, I don’t believe any of us working in this sector would regard this as a normal rate and it can only go one way in the future.
Therefore while it is positive to see volumes on the up, it is also appropriate to encourage and support an environment of responsible lending. We hear that many prospective Help to Buy first-time buyers are still not making the grade when it comes to securing a mortgage, and while this is disappointing for the individuals concerned, it is only right that lenders ensure borrowers comply with sensible affordability measures. Too often in the past we heard of individuals who had no deposit to speak of, and little chance of meeting mortgage repayments should rates rise, securing the necessary finance to buy a home: this was clearly a house of cards that was destined to be toppled. We must do everything in our power to ensure that the first-time buyer market in 2014 and beyond is built on much firmer foundations.