Big surge in first time buyers - but it won’t last…

For the first time since before the global financial crisis of 2008, the number of first-time buyers is estimated to have gone past the 400,000 mark.

The is according to the latest analysis from Yorkshire Building Society.

Despite the uncertainties generated by the third lockdown in early 2021, latest estimates suggest the number of first-time buyer transactions reached 408,379 during the year which is a 35 per cent increase on 2020. 

Furthermore, first-time buyers now represent 50 per cent of all house purchases with a mortgage, up from 36% in 2007.

The previous first-time buyer peak was as long ago as 2002, when 531,800 took their first step on to the housing ladder and you must go back 15 years to see transactions at this latest level, reaching 400,900 in 2006. 

In fact, these new figures are broadly double the numbers immediately after the crisis, where they hovered around 200,000 between 2008 and 2012.

Falling unemployment, low borrowing costs and an increased number of low deposit mortgage deals are key drivers of current demand.

The society says new purchasers appear to have not been deterred by the price of a typical first-time buyer home which has increased by nine per cent to £222,997 in the year to October, up from £204,230 a year earlier.

The ability of first-time buyers to increase the size of their deposits has been reinforced by the stamp duty holiday and the sudden drop in expenditure during lockdowns. 

The proportion of households’ disposable income saved nationally rose from seven per cent in 2019 to 27 per cent in Q2 2020, which was the highest since records began in 1963 by some margin. 

Current estimates suggest that in aggregate households have built up excess savings of £170 billion since March 2020.

And according to the English Housing Survey first-time buyers are typically in the high-income groups whose finances may have benefitted from COVID-19 restrictions. 

According to the EHS, over 60 per cent of first-time buyers are in the top 40 per cent of the income distribution, where survey data from the Bank of England shows that the improvement in household finances has been greatest.

Nitesh Patel, strategic economist at the Yorkshire Building Society, says: “The performance of the first-timed buyer market in 2021 has been extraordinary, particularly against the backdrop of uncertainties caused by the lockdown in the early months of the year.

“There are some strong drivers of demand that explain the increased volumes. Low borrowing costs is an important factor and the increased availability of more low deposit mortgages has also been an enabler mostly for first-time buyers. 

“Unemployment has also been falling for the last year and the jobs market has been getting stronger since the phased re-opening in April.

“Whilst first-time buyers don’t pay stamp duty on prices up to £300,000, new buyers looking to buy up to £500,000 would have benefited.

“In the near-term housing demand will continue to exceed supply, however with prices at an elevated level in comparison to local earnings, this should dampen activity. Therefore, it’s unlikely that we will continue to see first-time buyer numbers at this level in 2022 and beyond.”