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Affordability brings in more first time buyers
Published at 02:38 01/06/2009
Easter is when the housing market is supposed to pick up after its winter hibernation, and there’s some evidence that activity has indeed picked up, with estate agents reporting a shortage of properties on their books and sales going through more quickly than for many months.
Mortgage approvals are usually seen as a good advance indicator of activity, and have risen from a low of 27,000 last November to 39,000 in March. Actual lending on mortgages in March was up more modestly from £9.9bn to £11.5bn, though first time buyers (FTBs) accounted for a higher proportion of loans.
First-time buyer affordability has improved dramatically thanks to lower prices and interest rates. The Halifax reckons the average FTB loan in March was for 3 times income and that repayments accounted for just 15% of the buyer’s net income, the lowest percentage since 2004. Though mortgage availability is still a problem for many buyers, housebuilders are quietly selling off thousands of homes with pre-arranged mortgage deals at reduced prices to FTBs.
The average fall in house prices over the 12 months to April was just over 15% according to Nationwide, but regional variations are quite wide and so are those in different types of property, with new-build two-bed flats showing price falls of as much as 40% over the past 15 months. Nationwide points to a slowing in the rate at which prices are falling as evidence that the worst is over. The Royal Institution of Chartered Surveyors too says there are ‘tentative signs that the market is starting to pick up’.
The Council of Mortgage Lenders too has added a note of optimism. Though home repossessions rose to 12,800 in the first three months of 2009, this was below expectations and the CML now says that its earlier estimate of 75,000 repossessions for the whole of this year was ‘too pessimistic’.
FTBs will have an incentive to buy before December, because that is when the Stamp Duty holiday on properties worth under £175,000 comes to an end. The Halifax says that only in London does the average property bought by FTBs cost more than this.
Rising unemployment will keep the brakes on the housing market, but people in work will see big gains in their disposable income this year, thanks to lower mortgage costs and utility bills. So millions of existing homeowners will have the firepower to trade up if they want to - all they need is confidence that prices aren’t going to fall further.
The worst-case scenario of a further fall in prices of 10-15% looks less likely now, and provided mortgage availability continues to improve, the optimistic scenario of a gentle ‘bottoming-out’ between now and autumn is starting to look more likely.
