The housing market would face a disaster if the number of first-time buyers entering continues to drop, according to housing experts.
This month (May 16) UK Finance lending trends showed there were about 28,800 first-time buyers with new homes in March — 2.4 per cent fewer than in the same month in 2018 and the first month there had been a year-on-year decrease since September 2018.
Up until then the ailing housing market had been largely bolstered by this group of buyers.
Steve Brown, branch manager at Winkworth Estate Agents in Blackheath, said it would be “disastrous” for the housing market if this continued as “first-time buyers hold all the cards”.
He said: “These buyers coming in at entry level means the people in those houses can now sell, often moving to family homes or larger properties.
“If the first-time buyers aren’t there, these people become stuck and the market would slow considerably as part of the knock on effect.
“House prices would be hit hard. You would see a drop in house prices fairly quickly of about 5 to 10 per cent.”
Mr Brown went on to say that first-time buyers had become even more vital to the housing market since changes in the buy-to-let market meant it was no longer financially viable for those struggling to sell to rent out the property instead.
Landlords saw an additional 3 per cent stamp duty surcharge on second homes in April 2016 alongside phased cuts to mortgage interest tax relief, while buy-to-let borrowers are now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.
Mark Harris, chief executive of SPF Private Clients, also said the decrease in the number of new buyers after a period of continuous growth was concerning for the market.
He said: “First-time buyers are so important for the overall health of the housing market, ensuring transactions further up the chain can happen.”
Dan White, of White Financial Services, agreed that the market should “absolutely be worried” if first-time buyer numbers started to slip and stressed there was not enough innovation being pushed to help those looking to make their first steps onto the property ladder.
He added that the market was not an easy one for first-time buyers, particularly as the current generation of new buyers were suffering from huge inflation to house prices over the previous years and a restriction in wage growth in the majority of sectors.
He said: “The income to house price ratios just don’t correlate. Even in the most affordable towns, first-time buyers are still faced with at least a six or seven times income multiple.
“Once you look at the mortgage affordability assessments with lenders and take into consideration their lending restrictions on income multiples at certain loan to value levels, it leaves the first-time buyer with very little options.”
But others say it’s “too soon” to tell if the UK Finance stats are part of a long-term trend that would cause concern for the market.
Carmen Green, adviser at Xpress Mortgages, said: “I have witnessed several occasions where first-time buyers have grabbed a bargain as they jump in to fix chains that have collapsed in an otherwise shaky market.
“Particularly in the south east, the fall in property prices has given opportunity to first-time buyers who otherwise wouldn’t be able to afford to buy.”
Steve Patterson, director at Teeside Money, agreed that although a drop in the number of new buyers could cause a domino effect on the market, he said he “was not concerned at this stage”.
He said: “I think it will just be a blip. I don’t think there will be a big decline in the numbers unless there is a major impact to lending.”
Buy to let mortgage upper limits are rising, allowing property investors to buy properties costing in the millions to rent out.
Many high-income individuals choose to rent property rather than buying, enjoying the extra flexibility that renting can offer. So, can buy to let property investors take advantage of high upper limits to enter the luxury housing market?
When offering home loans, lenders set maximum limits on how much they will offer to borrowers who meet their criteria. These upper limits can vary depending on the loan-to-value ratio (LTV) that you’re borrowing at – with lower LTVs sometimes offering higher limits.
The latest lender to increase upper limits on their buy to let mortgages is Coventry Building Society who has increased its maximum buy to let borrowing limit to £750,000, meaning it now offer mortgages on properties worth up to £1.5 million.
However, some other lenders already offer upper limits far higher than that on their buy to let products.
Metro Bank and Bank of China both offer buy to let investors maximum loans of £5 million at up to 60 and 65 per cent LTV respectively. This means that you could buy a property worth more than £8 million if you have a handy £3 million as a deposit.
Metro Bank will also offer up to £3 million at 70 per cent LTV, while Kent Reliance can offer the same upper limit at 75 per cent LTV.
If quite so large a deposit is a problem do not fear, Kent Reliance offers loans of up to £3 million at a much higher 80 per cent max LTV, meaning you can buy a property worth up to £3.75 million with just a £750,000 deposit. The same lender will offer up to £1 million at 85 per cent LTV.
Tunbridge Wells town would be better protected from large scale new house building if the council proposal goes ahead to put 6,800 homes at Tudeley and Paddock Wood.
The controversial proposal for the tiny village in the heart of the countryside and the small town were officially unveiled this week to parish councils.
Residents were getting to grips with the shock of the proposition put forward by Tunbridge Wells Borough Council. which is grappling with a housing target more than doubled by the Government, to reach 13,500 new homes in the 20 years up to 2036. This is around 680 each year.
But while two areas could be changed forever during a timescale council leader Alan McDermott put at “probably 25 years” – Tunbridge Wells, which for years has seen controversial infilling, office conversions to residential, sizeable brownfield developments and new estates built or under way, might get something of a breather.
The proposals are in the draft Local Plan which will go out for public consultation in the early autumn.
Head of planning Steve Baughen said: “These strategies reduced the impact on the area of outstanding natural beauty compared to some of the other potential options, for example a more dispersed pattern of development across the borough.
“Similarly, this option does not add such intense pressure to the existing infrastructure as much as other options would – for example, if the vast majority of the development were to be around the main urban area, Tunbridge Wells and Southborough.”
Mr McDermott said new infrastructure, potentially including schools, drainage, utility links, a road off the A228, doctors’ surgeries and employment development, would be built as part of the Tudeley and Paddock Wood proposal.
Talking of the council’s track record in Tunbridge Wells as the planning authority, Mr Baughen said: “We always look to prioritise previously developed land and the redevelopment of previously developed land but as you are seeing, a lot of the sites which have been identified as suitable for redevelopment sites in the previous Local Plan and the Site Allocation Local Plan now have planning permission or indeed are being built out.”
He added: “This is a finite resource but this Local Plan looks again to make sure that suitable sites within the urban areas are being identified and allocated but a number of them have permission already.”
Petrina Lambert, who lives in Brampton Bank, Tudeley, said: “Our first reactions were shock, distress, upset then extremely angry.
“The whole idea made us feel sick. We moved here to live in a rural community that was now going to be destroyed.
“Why so many homes? 4,000 in Paddock Wood and 2,800 here in Tudeley. Tunbridge Wells borough has to build 13,000 new homes but why 6,800 in a four square mile radius? What about the rest of the district?
“There is also the development at Woodgate Way in Tonbridge only two miles away and no infrastructure in place to support this and a new development with a sudden and large increase in this area’s population.
“It is the destruction of a small and happy community and that of an area of outstanding natural beauty that upsets us most and there are not the right words to describe the loss.”
The Local Plan will go out to public consultation
The original housing target of 6,000 new homes for Tunbridge Wells was more than doubled by the Government to 13,500 during the past few years.
The Local Plan, an evergreen and constantly updating document, is in its 2016 to 2036 planning period.
In order to work out how many homes need to be built in the future, the council must take account of the housing which has already been built or permitted since 2016.
This leaves 9,000 homes – and the council is putting forward Tudeley, which is little more than a large cluster of homes, and Paddock Wood, which had a 8,253 population in 2011, for around 6,800 of them.
The explosive proposal was unveiled officially to parish councils on Monday and Tuesday nights, although the borough council said it had been working with the parishes behind the scenes.
The council said by building homes on such a large scale rather than ad hoc, proper planning could go into infrastructure.
The Local Plan will go out to consultation in September/October and again a final consultation on the final Local Plan next September before submission to the Planning Inspectorate in December 2020. It will be examined formally in the spring or summer of 2021.
The UK economy’s sluggish growth shows no signs of letting up, with all three major lending classes set to grow less than two per cent this year, new figures have revealed.
Despite an uptick in real incomes, demand for consumer credit is forecast to grow just 1.6 per cent this year and two per cent in 2020, the lowest rate of growth since 2013, according to the EY Item Club.
Mortgage lending will also remain stagnant, rising less than one per cent, as consumer confidence and a lack of supply continues to hit the property market.
Meanwhile, continued uncertainty around Brexit means business lending is expected to grow only 1.3 per cent this year, as businesses hit pause on major investment plans.
The sluggish forecast across lending classes is a best-case scenario based on a Brexit deal being reached by 31 October. Growth would be even lower if the UK were to crash out of the EU without a deal, according to EY.
“The weak economic outlook continues to hold back demand for lending,” said Omar Ali, EY’s UK financial services managing partner.
“It’s been a similar story for over a decade now and there’s little improvement in sight. Since the financial crisis, the expectation was that the economy would return to higher growth after a short period of sluggishness – this has never materialised and is not forecast to happen any time soon.”
It comes amid a slowdown in growth across the wider UK economy, which grew 1.4 per cent last year, its slowest rate since 2009. GDP growth is forecast for just 1.3 per cent this year, rising marginally to 1.5 per cent in 2020.
To outsiders the British can seem slightly obsessed with house prices. Yet it is an asset that matters. Two-thirds of UK households are owner occupiers and 35% of household wealth is tied up in property.
The value of that wealth has risen by almost 50% in the last ten years. Taking account of rising house prices and rental costs the average homeowner has enjoyed a return of roughly 8% a year in the last ten years – slightly less than the return from equities but far faster than earnings which have risen by around 2% a year over this period. Since the recession the average homeowner has made far more from increases in the value of their home than from pay rises.
But in the last three years the housing market party has tailed off. UK prices rose by just 1.4% in the last year. London prices fell 1.9% but this has been offset by modest gains in most other parts of the country.
Brexit uncertainties and consumer worries about the economy have weighed on the market, compounding the problem of stretched affordability in London and the South (elsewhere in the UK housing is significantly more affordable). Higher rates of stamp duty on more expensive properties and weaker demand from foreign buyers have had their greatest effect on the London market. Meanwhile increased rates of stamp duty on additional homes, reduced tax reliefs and new regulations have dented the attractiveness of buy-to-let.
But what about the long term outlook for UK house prices?
Over the last 40 years ever easier access to credit and ever lower financing costs have driven a dizzying rise in house prices. The liberalisation of the mortgage and financial markets from the 1980s increased the amount of mortgage credit available to home buyers. Interest rates have trended down since the early 1980s, with quantitative easing eventually collapsing the base rate to just 0.25% – a fraction of the peak rate of 16% seen 25 years earlier. Strong growth in population, an increasing number of single person households and a collapse in house building after the recession have added to the upward pressure on house prices.
It is hard to see the heady gains in house prices of recent decades being repeated in the future. With mortgage rates close to all-time lows there is little scope for major reductions in financing costs. Whereas the trend in financial policy in the 1980s and 1990s was towards liberalisation, today it is towards regulation. That has made lenders more cautious and mortgages rather harder to come by.
Politicians and policymakers are alive to the distributional effects of rising house prices. Rocketing prices have increased the wealth of older, generally higher income people, widening wealth inequalities and making it harder for young people to get on the housing ladder. The focus of policy today has tilted to helping first time buyers and those renting while increasing levels of housebuilding.
It’s been hard not to make money out of housing in the UK in the last 40 years. It is likely to be harder to do so in future.
Some areas of England are becoming so reliant on Help to Buy there are fears they could face problems when the scheme ends in 2023.
New research by modular homes developer, Project Etopia, revealed in Northampton 97% of new build sales were sold under the Help to Buy: Equity Loan scheme last year.
Other areas with a high percentage of new builds sold through Help to Buy included Burnley, Derby, Warrington and Bedford, according to the study.
Across the country more than half of new-build property purchases were funded by the government-backed scheme aimed at helping more people, particularly first-time buyers, on to the property ladder.
Project Etopia said this heavy reliance on the scheme, which was used in conjunction with 52,000 of the 100,000 new build purchases in 2018, reinforced concerns that when it is axed the housing market will be dealt a serious blow.
But it also feared the problem could be more acute in the ‘hotspots’ it identified with the highest uptake of the scheme, such as Northampton.
Joseph Daniels, CEO of Project Etopia, said: “Building more homes is the long-term solution to the housing crisis, not a free leg up. This startling research shows just how far Help to Buy is underpinning and driving the new-build market across the whole of England.
“There is a danger that, once the scheme ends, the rug could be pulled out from beneath those areas that have come to rely on Help to Buy to too great a degree. This study gives us an early indication of which markets will be most resilient.”
Project Etopia said the reliance on Help to Buy was more severe in the country’s towns and cities, with just over 54% of new build sales in these area funded by the government scheme.
The research found the highest number of Help to Buy new builds were sold in Wakefield, West Yorkshire, where 740 transactions took place under the scheme. Meanwhile, the lowest was in Eastbourne, East Sussex, where just one new build was sold through Help to Buy in 2018.
The location which was least reliant on Help to Buy was Cambridge where just 17.7% of new builds were bought through the initiative.
Housing minister Kit Malthouse has become the 10th MP to enter the race to replace Theresa May as the country’s prime minister.
A Leave campaigner, Malthouse has gained plaudits amongst Tory backbenchers since becoming MP for Hampshire in 2015, in particular for penning the so-called Malthouse Compromise plan to break the parliamentary deadlock on Brexit.
His idea was to replace the Irish backstop with alternative plans over a three-year period remains the only proposed solution which won a majority in the commons over a gruelling six-months of infighting over the terms of the Brexit deal.
Citing fresh polling that suggests 56 per cent of Brits do not want a senior Cabinet minister to succeed Theresa May, he said: “This leadership campaign cannot be about the same old faces, scarred by the wars that have split the Tory Party over the last 3 years. I believe I’m the new face, with fresh new ideas, from a new and talented generation.”
Writing in The Sun this evening, Malthouse said: “We must revolutionise our economy, freeing a new generation of entrepreneurs to take risks and build businesses, creating jobs and wealth.
“As a councillor I led the effort that halved rough sleepers in central London, and now I’m building houses for the young. I’m a Northern boy who built a business in the Midlands and now represents a stunning part of Hampshire.
“My family’s story is one of education, hard work and opportunity, and that’s what I want for everyone.”
Malthouse’s decision to run will come as a minor blow for his political ally Boris Johnson, who is currently the frontrunner in the Tory leadership race. Malthouse was formerly a deputy mayor under Johnson while he was Mayor of London.
The announcement comes hours after Malthouse’s Cabinet colleague Home Secretary Sajid Javid said he would also throw his hat in the ring for the top job.
In a video circulated today on Twitter, Javid said “first and foremost, we must deliver Brexit”.
In the video, Mr Javid said he wanted to “rebuild trust, to find unity and create new opportunities for our country”.
The number of mortgage approvals for house purchases in the UK reached a two-year high in April, a survey showed today, suggesting the country’s housing market may be recovering from a recent slowdown.
UK banks approved 42,989 mortgages in April, the highest figure since February 2017 on a seasonally adjusted basis, and up from 38,554 a year earlier, figures from data firm UK Finance showed.
The value of loans approved for house purchases by high street banks in April rose £1.32bn year on year, compared to a rise of £580m year on year in March.
Britain’s housing market has experienced a Brexit-induced slowdown in recent months as customers put off big purchases due to political uncertainty, despite consumer spending in other areas remaining resilient.
Howard Archer, chief economic advisor to the EY Item Club, said: “April’s marked rise in mortgage approvals suggests that housing market activity may well have got at least some temporary support from the avoidance of a disruptive Brexit at the end of March.”
“It may very well also be that the housing market has benefited from recent improved consumer purchasing power and robust employment growth,” he said.
The number of loans approved by high street banks for remortgaging rose £2.99bn in April compared to a year earlier, as homeowners continued to take advantage of record-low interest rates.
Figures from UK Finance also showed that spending on credit cards rose markedly in April to £11.16bn in seasonally adjusted terms, a rise of 8.8 per cent year on year.
UK Finance said: “This growth in spending reflects consumers’ increased preference for using credit cards as a means of payment, particularly online, because of purchase protection and card benefits.”
“Repayments have remained in line with credit card spending, showing overall that consumers are managing their finances effectively,” the firm said.
Gareth Lewis, commercial director of property lender MT Finance, said it was “encouraging” that “people are using their credit cards sensibly,” meaning “credit card debt isn’t spiralling out of control while interest rates are low”.
Overall consumer lending grew 3.8 per cent in April compared to a year earlier, a slight slowdown from March’s growth rate of 4.1 per cent.
Howard Archer said: “While consumers have clearly been less affected by Brexit concerns than businesses, the overall impression remains that they have nevertheless become more careful in their borrowing amid concerns over the economic outlook.”
The amount Britons saved in ISAs and accounts which require notice to withdraw money fell in April, while instant access saving grew.
Scottish property sales have risen to their highest level in 11 years as buyers brush aside fears over Brexit.
New figures from Aberdein Considine’sProperty Monitor report show that homes collectively worth £3.4 billion changed hands during January, February and March this year – the highest since the credit crunch hit the global economy in 2008.
Sales for the quarter are up £80 million (2.3 per cent) on last year and £225m (seven per cent) on 2016, the year the British electorate voted to leave the European Union.
With negotiations stalling and parliament gridlocked, economists had expected the property market to slow across the UK.
However, 19,491 Scottish homes were sold in the first quarter of 2019, up 2.8 per cent year-on-year thanks to significant sale growth in Aberdeen, Aberdeenshire and East Lothian.
The average cost of a property in Scotland is also 8.6 per cent higher compared with the same period in 2016, with prices now at £166,334, albeit price growth has slowed to just 0.2 per cent year-on-year.
Aberdein Considine managing partner Jacqueline Law said the report, published today, showed that Scots were “getting on with their lives” amid the political uncertainty.
“It had been feared that Brexit may bring the property market to a halt. However, quite the opposite has turned out to be true so far with the value of property changing hands returning to near-record levels.
“In fact, the only time that first quarter sales have been higher was in the years leading up to the global financial crisis.
“Businesses and consumers across Scotland can’t escape the uncertainty which Brexit is creating, but what is clear is that people are getting on with their lives whilst the politicians try and resolve the situation, which we hope will be sooner rather than later.”
Despite the sales growth, the report does show a sudden halt to the house-price growth in Scotland’s biggest cities.
Edinburgh, which was enjoying its best period of property price growth since before the recession, has recorded falling prices so far this year. However, with an average sale price of £258,822, the capital remains the most expensive place to buy a home in Scotland.
Glasgow, like the capital, was also benefiting from a strong period of house-price growth – but has seen prices fall 1.7 per cent so far in 2019 to £152,079.
Average prices continue to fall in Aberdeen and Aberdeenshire, Scotland’s other major market. But after years of decline caused by the oil and gas downturn, confidence is returning. Sales in Aberdeen alone are up by nearly 13 per cent year-on-year.
So far this year, it has been more provincial areas which have grown to boost the national market.
East Lothian recorded a substantial 38 per cent rise in the value of properties sold, reaching £109,039,078, which is a year-on-year increase of £30million.
Neighbouring West Lothian also demonstrated why a significant number of new housing developments are planned for the region with the number of homes sold up almost 12 per cent, and the value of property changing hands rising 19 per cent to £111,392,371.
The cultural and economic renaissance which is currently taking place in Tayside has also continued to have a direct effect on housing, particularly in Dundee. The city followed up a nine per cent rise in the value of properties sold in the final quarter of 2018, with a further 16 per cent jump in the first months of 2019. Average prices also rose 10 per cent at £134,845.