"With affordability challenges easing due to rates coming down, and with an anticipation this will continue, we should certainly expect first-time buyer activity to further improve."
The end of the year has been and gone, and the anticipated lending figures for 2024 and the predicted lending figures for 2025 have been issued by both of the major trade bodies that offer such analysis.
IMLA and UK Finance are – as you might expect – not a million miles away from each other in terms of those figures, which I will come to in a moment, but what is perhaps most instructive is where the (very welcome) growth has come from in 2024 and where it is also anticipated to stem from in the year ahead.
When it comes to gross lending for last year, both believe we will be mid-£230bn when the final numbers are established, representing a 4-6% increase on 2023, and it is also instructive that all this growth appears to come from house purchase business, rather than remortgage or product transfer which actually declined year-on-year.
Looking to the future, UK Finance believes gross lending will hit £260bn in 2025, of which £148bn will be purchase – an increase from £135bn in 2024; while IMLA plumps for a gross lending forecast of £275bn in 2025, with £177bn of it coming from purchase, up from £151bn this year.
The fact that purchase business has delivered all of 2024’s gross mortgage lending growth should not go unnoticed, neither should we forget first-time buyer activity within that. With affordability challenges easing due to rates coming down, and with an anticipation this will continue, we should certainly expect first-time buyer activity to further improve.
There is however a major caveat here, and it comes with the decision to return stamp duty levels for first-timers back to their previous thresholds, meaning after April they will pay more in tax for purchasing.
This, perhaps quite rightly, has led a number of commentators to suggest first-time buyer business will be ‘front loaded’ in 2025, with the first three months of the year being responsible for a significant chunk of all lending to new purchasers.
It remains to be seen how this will develop however. Are would-be first-time buyers simply going to put their plans to purchase on hold if they can’t complete before the end of March? Perhaps some will, but once on that journey, a slight increase in stamp duty is unlikely to deter many, and we might believe there could be some price negotiation to mitigate this or they will simply suck up the extra costs in order to get on the ladder.
So, we have some positive pointers for the year ahead when it comes to first-time buyers, and the question of course is whether there are similar green shoots for those who require high LTV mortgages in order to buy.
Each month I review the number of 95% LTV mortgages available to first-time buyers – an important metric, particularly for those who don’t have a Bank of Mum and Dad to rely upon, and are only likely to get on the ladder via such products.
Again, this is especially important in an environment where rental costs have risen significantly, impacting the ability of many would-be homeowners to save bigger deposits.
I use Nationwide’s latest monthly data for average UK house prices in order to review high LTV product numbers. For December 2024 the average price is £269,426 which would require a 5% deposit of just below £13.5k in order to get a 95% LTV mortgage.
After a drop in numbers last month, we are back on a positive trajectory at the start of 2025, with 95% LTV products up from 243 to 248. This has been a fairly typical figure over the last six months, but I wonder if lenders will sense the business opportunity that comes with increased first-time buyer activity/interest/demand in 2025 and up their involvement, and products, over the months ahead?
I certainly hope so. It would undoubtedly make sense to target the first-time buyer borrower demographic in the early part of 2025 given the ongoing noise about the stamp duty changes.
When it comes to the pricing of products and the 95% LTV ‘Best Buys’, very little has changed over the course of the last month. Given we have not had any Bank Base Rate cut since the last time I reviewed product numbers/rates, that is perhaps not surprising.
So, in the five-year fixed-rate product space, Progressive’s Northern Ireland-only 4.65% deal continues to lead the way, followed by fellow societies Scottish (4.89%) and Newbury (4.99%). In the two-year space, we have three societies at the top: Scottish (5.14%), Newbury (5.19%) and Furness (5.19%).
Over the past few months I’ve highlighted the potential benefits for first-timers in taking a discount/tracker/variable product, particularly if rates do continue to fall. There is no change in the top three here this month. It remains Progressive with its 4.89% two-year discount, Newbury with its 4.99% three-year discount, and Loughborough with its 5.19% three-year discount.
Again, I should highlight that the number of trackers/discounts/variable products at the 95% LTV level has actually fallen this month – down only slightly from 26 to 25 – although there tends not to be a great deal of movement here possibly given the fact that first-timers tend to prefer fixes in order to have certainty over their payments.
Overall, we enter 2025 with a number of positive sentiments to grab onto; strong product numbers, the likelihood of falling rates, and an increase in demand from first-time buyers.
As always, there is always room for more product choice, especially with more competitive rates, however I suspect we’ll be waiting for further Bank Base Rate/swap movement before we see anything of note. In the meantime, we should all be educating would-be purchasers about the opportunities that exist for them, even with a small deposit to their name.
