First-time buyers using a mortgage represented half of the United Kingdom’s overall property market in 2018, according to a study by the Yorkshire Building Society (YBS).
The lender reports that 367,038 mortgages were taken out last year – an increase from 362,800 in 2017, and the highest proportion in the UK since 2006. It is nearly twice as many as the 193,300 mortgages taken out by first-time buyers after the global financial crisis in 2008, and just nine per cent less than the previous high of 402,800 two years before.
But while the total number of first-time buyers entering the market may have reached a 12-year high, a regional breakdown of the YBS research shows that the number of new mortgages in London peaked in 2014. According to a report from market research firm Moilor, the number of new homes being built by private developers in the capital in 2018 reached its lowest level in six years. However, the highest number of new mortgages (71,415) taken out last year was still in the South East of England.
YBS’s strategic economist Nitesh Patel said that though property has become generally less affordable, government measures to encourage new buyers to enter the market appear to have had some success. “The figures indicate that government initiatives such as stamp duty relief, Help to Buy equity loans and Help to Buy ISAs may have made an impact.”
Help to Buy was introduced in 2013 and allows first-time buyers to take out a state-funded equity loan of up to 20 per cent (40 per cent in London) of a house’s price. The availability of these loans, which are interest-free for five years, means that some first-time buyers can get onto the property ladder without having to save more than five per cent of the price of the property they want to buy.
Help to Buy allows buyers to accrue a 25 per cent deposit – five per cent from themselves and 20 per cent from the government – which grants them access to more favourable mortgage rates. The policy is only applicable to new-build properties, however, and some buyers have complained that Help to Buy has simply encouraged developers to charge more for new properties.
According to the Ministry of Housing, Communities and Local Government, almost £10bn of Help to Buy equity loans across 183,947 properties have been taken out since April 2013, with first-time buyers accounting for 81 per cent of all properties bought through the scheme.
While Help to Buy users do not need to save up as much for a deposit and may have access to better mortgage rates than they would if they were applying for a 95 per cent mortgage, for example, critics of the policy have questioned how attractive the prospect of the government owning a stake in a person’s home really is. Borrowers can pay back part of or their entire loan early if they want, but the government will only accept this amount if it represents a minimum of 10 per cent of the property’s value when sold on.
The borrower’s loan, then, does not remain at a fixed rate and the amount they will have to repay the government will fluctuate in accordance with the market value of the property, because it is percentage-based. This means that if the value of the property rises, the borrower may have to pay significantly more than they initially borrowed, which could quite conceivably counteract the five years of no interest.
And Patel acknowledged that while lending practices may be more flexible, saving for an initial deposit, regardless of how small, will remain a challenge for many first-time buyers considering the state of the wider economy. “Buying your first home remains tough for many… as demonstrated by the increasing numbers who have received help from the bank of Mum and Dad… but it’s encouraging to see first-time buyer levels at a 12-year high and climbing.”