"Any drop in private rental sector supply actually hurts would-be first-time buyers as they are more likely to be housed in this type of tenure, and falling supply/sustained demand means they will pay more in rents"
If you’re a would-be first-time buyer, how might you have viewed last month’s Budget?
Well, for a start, you might well be thinking you need to get your skates on if you want to access the current stamp duty threshold (and savings) for first-timers which, as we know, will be going back to its previous level from April next year.
That is essentially going to mean that if you want the current rates of relief, when buying a home up to £425,000 or buying up to £625,000, then you will need to have achieved your home purchase by the last day of March next year.
On paper, and for the uninitiated, that might seem like plenty of time – four and a half months – but as advisers will know only too well, even with any chain stopping with their first-time buyer client, the average transaction still takes approximately five to six months, and therefore we are already looking at a tight deadline.
In other areas, was there truly anything for first-time buyers to get excited about? They might have celebrated the increase in stamp duty for buy-to-let landlords who want to purchase, but if landlords can’t afford/don’t want to buy, does this truly leave the field open for first-timers to purchase these properties?
Perhaps it does in some instances, but generally do first-time buyers want to buy the properties that landlords can’t/won’t buy? That’s a tough call in my view. Indeed, the unintended consequence is that any drop in private rental sector supply actually hurts would-be first-time buyers as they are more likely to be housed in this type of tenure, and falling supply/sustained demand means they will pay more in rents, which in turn will mean it will take them to longer to save for deposits.
And, you wonder why, industry stakeholders continue to stress the need for cohesion between the PRS and the owner-occupier sectors?
First-timers are likely to be benefit from commitments to build more new – and affordable – homes but they also might not be holding their breath that they are going to be built in the numbers suggested. We know 1.5m-plus over this Parliament is ambitious and will require some serious increases in activity; we have been here before, and been let down year after year so it’s definitely not set in stone.
I am, however, slightly more confident than in the past as at least this time the focus has been set out from the start and it does seem the housebuilders are buying into that.
What we can say for first-time buyers is that they currently do have a higher degree of product stability in terms of the number of high LTV products currently accessible to them. And that’s not always been something we could point to over the past few years, particularly in that period post-first Covid lockdown, and post-Mini Budget.
As I hope you know, every month I review the number of 95% LTV products available to first-time buyers, using the Nationwide’s most recent average house price figure. For October this was £265,738, which – seasonally adjusted – was a 2.4% annual increase, showing that first-timers are still having to save more for their deposit, even if this has been deemed to be a period of subdued house price growth.
Again, prices will only be stabilised by further supply being able to meet the demand that exists, providing a further reason why it’s imperative Britain builds more homes.
For those who can secure a 5% deposit, I’m pleased to say high LTV product numbers have stayed stable, and are almost the same as last month, just down to 250 from 252 in October.
Pricing does however continue to shift – as you might anticipate – and given the Budget did shift swaps in an upward direction, it’s no surprise to see rates ticking up slightly. One caveat to this, I am writing this article before the next MPC meeting and we might well see action taken there which could shift rates downwards.
In the five-year fixed rate space, Progressive’s Northern Ireland-only 4.65% deal continues to lead the way, but interestingly in both the five-year and two-year 95% LTV product space, we have the same four lenders in the same top four positions.
Five-year options come from Clydesdale at 4.90%, Halifax at 4.91% and Lloyds at 4.92%, while two-year options come again from Progressive with 4.9%, Clydesdale at 5.2%, Halifax at 5.21% and Lloyds at 5.23%. It doesn’t need me to point out that behind the NI building society, these are three larger, mainstream lenders offering these rates and they may well have the capacity and appetite to do more of this high LTV business.
In the discount/tracker space, once again Progressive have a two-year discount at 5.14%, Loughborough continue to offer a three-year discount at 5.15% and Newbury also offer a 5.19% three-year discount. This is unchanged from last month, and again it will be interesting to see if/when the MPC act, how this will shift these types of deals.
If we are thinking that rates will fall further over the next 12 or so months, might more borrowers consider a variable rate in the short-term, and then look to fix when rates are lower. First-timers are not necessarily a group that opts for payment uncertainty with their first mortgage, but this could be an option worth pursuing for some. Time for advisers to really earn their corn.
Last month I pointed out how these discounts were not a million miles away from their two-year fixed rate counterparts; well, this month, they are cheaper than all but the Progressive deal, and therefore this could be even more of a consideration going forward.
Overall, it remains a pretty healthy high LTV mortgage market, with a significant number of product options to choose from. However, the point should be made, that if would-be first-time buyers do want to benefit from the current stamp duty thresholds, and the saving they will deliver, then they will need to act pretty much right now.
That might well be a strong message for advisers to push out to this borrower cohort, who have very little time to literally get their house in order.
