Number of First Time Buyers On The Rise

First time buyers are on the rise in the UK according to new data, a development that is causing commentators to be cautiously optimistic about where the housing market is heading. 

The Numbers

A monthly report released by Connells Survey & Valuation in July found that first-time buyers were behind roughly 50 per cent of all purchase valuations on properties in the UK. That's a 6% rise over the five-year average. 

The news followed directly on reports from UK Finance that in June the first-time buyers market was "soaring", having risen 26% on the previous month and 9% on the figures for the same month a year earlier. It was the highest rate in over ten years.

All this points to a steady uptick in the numbers of families, couples and individuals who are taking real steps towards becoming property owners for the first time.

Cautious Optimism

Despite what sounds like a promising trend in what has been a relatively troubled UK housing market for the past few years, the experts are not completely ready to celebrate just yet.

John Bagshaw, Connells Survey & Valuation’s corporate services director, points out that when prospective property owners show interest in purchasing a home by getting a valuation carried out, it does not automatically indicate that they have the means to do so. He explained that, while the market has had a significant boost in demand from those eager to become homeowners, encouraged by a solid employment situation and low mortgage rates, purchasing a home may not actually be feasible at this point for many would-be buyers.

 "Economic conditions are still tough," Bagshaw said. He added that the problems that have plagued the UK housing market in recent years – including skyrocketing property values and ballooning general cost of living – still make it difficult for the average person to save for a deposit.

Bagshaw pointed to the fact that house prices are roughly eight times higher than average earnings, and going up nearly twice as fast, at a rate of about £10,000 a year. He indicated that first-time buyers could use some help achieving their dream of becoming property owners, and suggested that they might be given a pass when it comes to stamp duty. 

What this means for the buy-the-let market

The seemingly healthy signs in the private market are also hiding some not so healthy figures when it comes to commercial real estate. The number of new buy-to-let landlords entering the market has declined. 

The Connells Survey & Valuation report points to recent government policies that have dealt a blow to incentives for entering the rental market. These policies include the increases in stamp duty and the reduction in mortgage relief for buy-to-let landlords.

Bagshaw said that the trend does not mean that the buy-to-let sector has collapsed, but that it is increasingly dominated by existing landlords rather than new ones. He pointed to the stamp duty surcharge, as well as the recent policy blows to tax relief on mortgages for buy-to-let investors as the main culprits that could be preventing new landlords from setting up shop.

Low Fixed Rate Mortgages... Here to Stay?

Mortgage-wise, now is about as good as it is going to get for potential homebuyers. Fixed rate mortgages are at record lows and showing no signs that they will bounce back any time soon. So if you have long dreamed of becoming a homeowner, you should start having a look around today!

What is a fixed rate mortgage?

When lenders say "fixed rate", they don’t mean that the interest never changes. Instead, you can expect that it will stay constant for a certain period of time at the beginning of the mortgage period. After that it will vary, according to the economy and the interest rate set by the Bank of England. Generally the "fixed" period is 2, 5, or 10 years with higher interest rates for longer fixed periods.

What’s the best deal?

Shopping for a mortgage is not as simple as looking for the lowest interest rate. There are lots of other factors to consider, like the size of the down payment and whether your lender charges an arrangement fee.

2-year fixed rates

HSBC tends to offer the lowest rates. Right now they have a 2-year fixed rate mortgage with an interest rate of 0.99 per cent, provided you pay a 40 per cent deposit (which means this is generally a mortgage for those who are refinancing or moving homes).

There is also a 10 per cent deposit, 2-year option for first-time homebuyers, with an interest rate of 1.97 per cent. These are some of the lowest interest rates in history. However, you should also remember to factor in a one-time payment of £1,762 for arrangement fees.

10-year fixed rates

Of course, some people may want the stability of a longer fixed rate. In that case the field gets a bit more crowded. For 10-year fixed rates, HSBC still offers one of the lowest interest rates for those willing to pay a 40 per cent deposit: 2.79 per cent interest with no arrangement fee.

However, for those who can only afford a 10 per cent down payment on the 10 year fixed mortgage, the best offers are TSB and Nationwide, where the rate jumps up to 4.19 per cent. TSB charges £200 in fees, while Nationwide charges £999.

5-year fixed rates

If you are looking for a middle way, you can check out 5-year fixed rates. In this category, HSBC offers a good deal for those able to put down 40 per cent up front: 1.99 per cent with £1,262 in fees, while First Direct also offers some comparable rates.

Those needing to limit the down payment to 10 per cent might check out the Norwich and Peterborough Building Society, which offers a 2.8 per cent interest rate with a £1,776 fee, or the Yorkshire Building Society, which is promoting a 2.8 per cent interest rate with a £1,305 fee.

Whatever your situation, if you are thinking of buying or changing homes or refinancing your mortgage, now is a good time do it. There are low-interest mortgage plans available for almost every category of homebuyer.

Stamp Duty Changes: A Guide for Buyers, Sellers and Landlords

The Stamp Duty tax has been the star of much of the housing news in recent weeks. A hike to the duty included in the 2016 budget is said to have major implications for the sector. The move is intended to take steps towards solving the current UK housing crisis, the main element of which is a major shortage of housing stock. However, confusion has arisen as to exactly how changes to stamp duty will help, if at all. We've put together a guide to stamp duty; what it is, what it’s intended to do – and what it actually does.

What is the stamp duty hike?

Stamp duty was a tax on the cost of homes and properties valued at over £125,000. As well as introducing a lower threshold of £40,000 (at which stamp duty will now begin at 3 per cent) the 2016 Budget proposes to raise the duty by 3 per cent, for people with second homes. So the total rate will now be 5 per cent in the £125,000-£250,000 bracket, and 8 per cent for homes valued between £250,000 and £925,000.

What’s the goal?

The purpose of the rate change is to discourage people from buying second and third homes, so that some of the UK housing stock can be opened up to first-time buyers. The idea is also to target new buy-to-let landlords, so that people are encouraged to buy rather than rent their homes.

Who does it affect and how?

Landlords: The target of the rate hike is new landlords, who were found to be among the "losers" by the Telegraph’s assessment of the 2016 budget.

Renters: Because new landlords are hit with an extra tax on buy-to-let investments, renters are also going to wind up paying higher prices for their homes.

Buyers: While the rate change is intended ultimately to benefit first-time buyers, it heavily discourages buyers of second and third properties. Additionally, the fact that it will end up driving up rent prices means that those who have not previously bought a home will be saving less, and so will be less likely to be able to buy in the near future. No matter what, it’s lose, lose, lose for buyers.

Sellers: Sellers, especially those looking to downsize from two or three properties to just one, are benefited by the changes to stamp duty, with housing prices currently at an all-time high and still rising. The Telegraph has declared downsizers to be among the winners in the 2016 budget. "The new stamp duty rates applying from April 2016 – which had been announced previously – ran the risk of catching out those people who owned two properties temporarily while, for example, they sought to downsize," the Telegraph reported. "In his Budget, Mr Osborne said they will now have 36 months in which to sell one of the properties – increased from 18 months in the earlier proposal."

With average home prices now at a record high of over £200,000, sellers are in a better position than ever, while everyone else may suffer. The changes to stamp duty don't seem to do much to change that situation. If anything they make the disparity just a little bit bigger.