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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.”

By Imogen Tew

Source: FT Adviser

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