The year 2014 saw the highest number of first-time buyers finally managing to get on the property ladder since 2007, according to new figures. Does this mean that things are finally looking up for first-time buyers?
The number of people who bought their first house or flat during 2014 rose to 326,500, according to an estimate from the Halfiax, one of the UK’s largest mortgage providers. This was 22% higher than the number who managed to do so in 2013 – a major improvement.
What makes this news especially remarkable is that it occurred against the backdrop of increasing house prices. House prices as a whole rose 8.5% on average last year (although in London the rate was nearly 20%), and the typical first-time buyer had to pay £171,850 in order to get on the property ladder, which was 9% higher than the year before.
So why were more first-time buyers able to purchase? The lender put this down to cheap mortgage rates, government assistance and the improving economy.
They argue that the biggest single factor was low mortgage rates. The Bank of England base rate – which plays a key role in determining the interest rates on domestic mortgages – has been held at a historic low of 0.5% for almost six years, with some commentators ruling out any changes to this policy during 2015. This makes borrowing a mortgage very cheap by historical standards.
The biggest barrier for many first-time buyers over recent years has been the size of the deposit that they needed to put down in order to buy a property. However, the Halifax’s figures suggest that pressure in this area has finally started to abate: the size of the average deposit fell 7%, to £29,218 compared with £31,582 in 2013.
Part of the reason for this seems to be government help with getting people on the property ladder – figures suggest that 80% of people who are helped by the government’s popular “Help to Buy” scheme (which allows you to buy a property with a deposit of as little as 5%) are first-time buyers. Lenders also appear to be regaining confidence now that the economy has returned to growth following the recession; improving job prospects and higher wages undoubtedly feed back into this.
Craig McKinlay, the Halifax’s mortgage director, attributed the improvements in the position of first-time buyers to improvements in the wider economy:
“Improving economic conditions and rising employment levels have boosted confidence among those thinking about getting onto the housing ladder for the first time [since 2007].”
The net result of these trends is that housing affordability definitely seems to have improved for first-time buyers: on average they now spend 33% of their net income on mortgage costs, compared with 50% before the crisis hit in 2007.
So is everything rosy for first-time buyers?
Although these figures contain plenty of positive news for first-time buyers, unfortunately there are still areas of concern which remain.
First and foremost, prices are still going up, especially in London, which is part of the reason why the capital has the oldest average age of first-time buyers in the country, at 32. Nationwide, the average age is 30, having risen from 29 in 2011. It can be argued that a trend towards older first-time buyers is not generally good for society as whole: they will have less money left over for raising children and saving for pensions, storing up bigger problems for society later on.
The Halifax’s figures also don’t say anything about the share of first-time buyers who received help from their parents, although a study that used data from 2012 found that 64% of successful first-time buyers were in this position. Falling average deposits will open up home-ownership to more people who don’t have parents to help them, but the social gradient of people who can afford to get on the property ladder in many parts of Britain is still more skewed towards the children of wealthy homes than it has been for generations.
The Halifax’s figures paint a picture of an improving landscape for first-time buyers, but to make home-ownership an attainable goal for everyone who wants it the next government will need to take more decisive action.