Finance Matters

Posts Tagged ‘first time buyer’

Gross mortgage lending fell to £10.5bn in January, 12 per cent lower than the total for December.

However the figures represent a year-on-year increase of 10 per cent, the Council of Mortgage Lenders (CML) said.

January was the sixth consecutive month of higher lending compared with the previous year.

Home loan approvals also increased in January, by 30 per compared with January 2011, to the highest level for two years.

“The recent improvement in housing and mortgage market sentiment is welcome,” the CML’s chief economist Bob Pannell said.

“But we should be careful not to overstate its significance, given the very low levels of activity we are starting from and the protracted and difficult economic rebalancing that the UK and other countries have embarked upon.”

Some of January’s upturn was attributed to a rush by first-time buyers to purchase a property before the end of stamp duty relief in March.

The temporary exemption, which meant that homes costing under £250,000 were free from the 1 per cent stamp duty, is being lifted by the government because it is believed to have been ineffective in boosting the first-time buyer market.

The increased number of first-time buyers is expected to push up house sales and has contributed to a rise in prices.

House prices increased by 4.1 per cent in February, according to Rightmove, the fastest increase since 2002.

Miles Shipside, director at Rightmove, said: “The biggest jump in new sellers’ asking prices for nearly 10 years indicates there is pricing power if you are selling the right type of property in the right place where enough potential buyers have access to funding.

“If your local market does not have those characteristics and your price-pump is based on little more than seasonal optimism and an estate agent’s hot air, then be prepared for buyer response to be a let-down.”

Paula John, the editor-in-chief of Your Mortgage magazine, has advised first-time-buyers to consider paying for their home through an offset mortgage.

Offset mortgages are “the way forward” she said, suggesting they are “the most tax-efficient way of using any excess income”.

However offset mortgages are only suitable for potential house buyers who have a significant amount of savings, as they take into account the amount of savings a borrower has, and ‘offset’ the mortgage loan against it.

If a house buyer has £15,000 in savings and a mortgage of £100,000, for instance, the interest on the mortgage would only be payable on £85,000.

Monthly repayments are based on the full amount but the reduced interest payments mean that the mortgage is paid off more quickly.

With the base rate at 0.5% and savings earning very little interest, offset mortgages can be a good way of making the most of a nest egg.

Ms John said: “I am staggered by how few people in this country take advantage of offset mortgages; they certainly are the way forward and everyone I know in the mortgage industry has got one themselves.”

The latest figures from the Council of Mortgage Lenders (CML) suggest that the first-time buyer market is improving.

The number of mortgages agreed for first-time house buyers increased to 18,700 in December, 7 per cent more than the previous month, and a 14 per cent increase compared with December 2010.

The CML attributes the increase to a race by first-timers to buy a property before the end of the stamp duty holiday.

The government temporarily suspended the 1% stamp duty rate for first-time buyers, on properties worth between £125,000 and £250,000, but it is due to be reinstated in March 2012.

In contrast, there was a 6 per cent fall in the overall number of mortgages agreed, with just 509,500 mortgages approved last year.

HSBC has announced plans to lend more than £15 billion in mortgages this year, with £3m of this ring-fenced for first-time buyers.

This should provide mortgages for up to 150,000 home buyers during 2012, including 27,000 people buying their first home.

The sum amounts to 11 per cent of all the mortgage borrowing predicted for 2012 and represents HSBC’s biggest ever share of the mortgage market.

Martijn van der Heijden, head of lending at HSBC, said that the promised investment “demonstrates HSBC’s commitment to continuing to help people move up or indeed take the first step on to the housing ladder.”

Although analysts have suggested that the economic downturn will cause lenders to tighten their mortgage criteria, HSBC said it had no plans to do so.

Its promised investment will come under its current lending strategy which is designed to ensure that new lending is in the best interests of customers and shareholders, the bank said.

The latest Bank of England Trends in Lending report suggests that there will be an increase in first-time buyer mortgage deals in the first quarter of 2012.

This will help borrowers with high loan-to-value ratios and could allow prospective buyers who are currently trapped in rental properties, to purchase their first property.

The first-time buyer share of the market has improved slightly since autumn 2011, when it hit its lowest level for nearly three years.

The latest data from the Council of Mortgage lenders reveals that first-time buyers took out 17,300 loans, worth £2.1bn, in November 2011, a 4 per cent increase by volume and 5 per cent by value compared with the previous month.

The withdrawal of the stamp duty concession in March is expected to help fuel an increase in first-time buyer activity in the first quarter, with prospective home owners hurrying to purchase their first property before the deadline.

The number of first time buyers increased significantly last year as more high loan to value (LTV) mortgages became available, according to the latest Mortgage Monitor from e.surv chartered surveyors.

The number of mortgages advanced at an LTV of 85% or more increased by 32 per cent to 57,301 in 2011 compared with 43,379 in 2010 and lenders also relaxed the qualifying criteria on this type of mortgage.

The average deposit fell to 38 per cent in December 2011, compared with 41 per cent in December 2010 and for the year as a whole, the average deposit fell to 39 per cent, compared with 43 per cent in 2010.

The number of mortgages approved on first time buyer property (worth £125,000 or less) in December 2011 soared by 25 per cent to 12,343, compared with 9,873 in December 2010.

According to the survey, lending conditions are at their most favourable for buyers since August 2007.

Richard Sexton, director of e.surv, said: ‘The improvement in 2011 is modest, but when taken against the backdrop of the eurozone crisis and turgid economic growth, it’s clear the market demonstrated real staying power last year,’

Barclays also revealed the results of its latest mortgage survey, claiming that mortgages in 2011 were the most affordable since records began 10 years ago.

The survey, based on data from more than one million customers’ accounts, found that homeowners spent an average of 15.4% of their take-home pay on their monthly mortgage payments last year compared with 20.5% in 2008.

In September 2011, the typical monthly mortgage payment fell to £488 a month, representing 15.2% of take-home pay.

Head of mortgages at Barclays, Andy Gray, said: “With the cheapest ever mortgage deals offered to homeowners last year and the fiercely competitive mortgage market, it stands to reason that the average monthly mortgage payment was at its most affordable level in a decade.”

Although more new houses were put up for sale in December, transactions were hampered by sellers asking too high a price for their properties, according to the Royal Institution of Chartered Surveyors (RICS).

December saw the number of houses put up for sale increase for the third month in a row, especially in London where new instructions reached their highest level since January 2005.

There was also a slight increase in new buyer inquiries but in view of the unrealistically high prices, surveyors’ sales expectations declined in comparison with November and are now flat.

RICS housing spokesman Ian Perry said: “The increasing number of prospective sellers who placed their homes on the market in December is a positive development, as a lack of stock has been a big issue in some parts of the country.

“But with sales expectations remaining flat, it is important that vendors are realistic in their pricing if they wish the sale to go through in good time.”

The recent fall in property prices continued in December, but it slowed to its lowest level since June 2010.

London was the only area where property prices increased.

A lack of mortgage finance is still holding back the market, with many prospective first time buyers unable to raise the high deposits needed to take their first step on the property ladder.

However, house-builder Persimmon reported a more positive outlook for the first-time buyer market.

The company said it expects its 2011 profits to rise by half and the improvement is expected to continue into 2012, helped by an increase in first time buyer interest.

“Whilst the general economic backdrop to the U.K. housing market remains challenging, we have experienced encouraging levels of visitors, resilient sales reservations, low cancellation rates and stable prices,” Persimmon said in the statement.