First-time buyers thwarted by stagnant market

Homeowners’ reluctance to move house is having an impact on first-time buyers hoping to step onto the property ladder, reports Lloyds Bank.

What’s the latest?

Potential first-time buyers are being thwarted by a fall in homemovers as existing owners struggle to trade up the property ladder.

Homemovers accounted for just 51% of housing sales during the first half of 2017, down from 64% a decade ago, according to Lloyds Bank.

Only 171,300 existing homeowners bought a new property during the six months to the end of June.

Although the total was only 2% lower than in the same period of 2016, it was less than half the level seen in the first six months of 2007, before the financial crisis hit.

The steep decline in homemovers is contributing to the stagnant property market and making it harder for first-time buyers to get on to the ladder.

Why is this happening?

People’s reluctance to trade up the property ladder is likely to be due to a combination of the high cost of moving and the shortage of homes for sale.

The cost of the average property bought by a homemover has soared by 41% or £84,869 during the past five years, rising from £206,122 in 2012 to the current £290,991.

On top of this and other moving costs, homeowners will also have to pay more than £4,500 in stamp duty on a £290,991 property.

Even if they are happy to go ahead with a purchase, they may not be able to find a home to buy as the number of properties on the market remains close to record lows.

Who does it affect?

The shortage of homes for sale not only impacts those hoping to trade up the ladder, but it also has a negative effect on first-time buyers.

The fact that people are not moving on to bigger homes means their existing properties are not being put on the market, intensifying the shortage of homes for first-time buyers.

Sounds interesting. What’s the background?

Andrew Mason, Lloyds Bank mortgage products director, said current homeowners might be reluctant to move on for various reasons, including, “more people are paying off their mortgages, and the cost of moving house could be putting people off”.

The first half of 2016 saw 18,000 more homemovers, an increase of 11% compared to the same period in 2015. This increase may have been due to owners buying homes before the introduction of the new stamp duty charges for second and additional homes.

First-time buyers are not the only ones who need substantial deposits for a property purchase. Those trading up the ladder have seen the average amount they put down soar by 40% in the past five years to £96,109, a considerable rise from £68,663.

Unsurprisingly, Londoners had to get together the most cash for their next move at £188,916 – four times more than the £48,080 needed by those in Northern Ireland.

Next-time buyers in the capital also faced the biggest jump in the price of their next home, with average prices for those trading up the ladder soaring by 56% during the past five years to £561,032, followed by those in East Anglia and the south east who face a 52% and 51% hike respectively.


More in landlords’ pockets as average rents rise in August

VERAGE rents in Northern Ireland rose faster than any other UK region apart from the south west of England during August, according to the latest industry data from HomeLet Rental.

The 3.7 per cent spike in the north in August compared to the same month in 2016 easily eclipsed the UK average figure of 2.4 per cent, though the average monthly rental here is just £634 compared to £939 across all the regions.

This, however, is skewed by London, where tenants are stumping up a whopping £1,607 every month to keep a rented roof over their heads.

Nonetheless, the overall figures are seen are bringing welcome relief to landlords who have been battered by the perfect storm of tax changes and post-Brexit uncertainties.

The performance in Northern Ireland in this latest report is particularly stand-out, albeit from a modest sample size, putting it in second place of the 12 UK regions.

August’s increase in average rents was partly driven by a return to inflation in the London market, where rents agreed on new tenancies last month were 2.4 per cent higher than in August 2016.

Excluding London, rental price inflation has also picked up, with 10 out of the 11 remaining regions beyond the capital seeing rents increasing last month.

The average rent on a new tenancy in Northern Ireland was £634, up 3.7 per cent compared to the same period in 2016 when it was £610.

It was the fastest UK rise apart from the 3.9 per cent life in the south west of England, with only the south east of England recording a decline (-0.2 per cent).

HomeLet’s chief executive Martin Totty said: “While we’ve often observed a seasonal uplift in average rents at this time of year, there’s evidence of a trend now emerging which points to a reversal of the declines seen over the early part of this year.

“This will be welcome relief to landlords who have been battered by the perfect storm of tax changes and post-Brexit uncertainties.

“Whether the trend continues or represents only temporary relief from the headwinds faced by property owners, the remaining months of 2017 should provide the answer.”

He added: “Whether the recent strengthening in rents achieved, seen generally across all regions of the country, is driven by more robust demand or by some restriction of supply is hard to judge.

“Either way, landlords will only be encouraged to invest in property over other assets if they’re convinced they can achieve reasonable returns. If not, then the supply of rental properties could become constrained.

“Many landlords still face further increases in their costs and so will need to find a new equilibrium between their legitimate required returns and affordability for tenants. It seems the elements in solving that particular equation become ever more complex.”

The HomeLet index digs into data on new tenancies in the UK and processes information including the rental amounts agreed, the number of tenants moving into the property, together with the employment status, income and age of all tenants. Its trends are seen as giving a relevant insight into changes in the private rented sector.


Mortgage warning: Repayments set to JUMP as rates forecast to rise above THREE per cent

MORTGAGE bills are set to jump and house prices will be hit as rates rise over the next two years, a top economist group has warned.

The typical mortgage rate will rise above three per cent by the end of 2019, according to Capital Economics.

An increase will raise repayments for homeowners who have not fixed on to long-term deals and also hit house price growth amid lower levels of lending, the economy experts forecast.

The rise in mortgage rates will come off the back of the Bank of England raising the base rate to 1.75 per cent by 2020, according to Ed Stansfield, Chief Economist, at Capital Economics.

It’s widely thought core interest rates could rise in November for the first time in a decade, after the Bank’s Monetary Policy Committee (MPC) warned of a rise in the coming months.

A hike will likely raise the cost of borrowing through mortgages as well as credit cards and loans.

But rates are set to rise much faster than many families and businesses expect, Mr Stansfield warned.

He said: “We now expect the first rise in Bank Rate to come at November’s meeting.

“We have then pencilled in three hikes next year, and a further two for 2019.

“Thus, by the end of 2019 we expect Bank Rate to sit at 1.75 per cent.

“Accordingly, it seems almost certain that mortgage interest rates are now approaching a turning point.”

The average mortgage rate will hit 3.2 per cent by the end of 2019 from its current level of 1.95 per cent, according to Mr Stansfield.

He said the increase will hit house price growth but not send values crashing.

In a research note Mr Stansfield added: “We believe that employment levels will stay high and the growth outlook will improve.

“Add in the fact that, in recent times, new loans have been subject to affordability tests, and we do not think that such rate rises will drive up mortgage arrears or forced sales which could trigger house price falls.”