Can first time buyer numbers keep on rising?

There’s no doubt that first time buyers are an important buyer segment for UK housing transactions. In the last eight years, the growth of first time buyers (FTBs) has outpaced all other buying groups and in 2018 they became the largest buyer group in the UK, with a share of 36% of all transactions.

Various factors contributed to this increase including affordability, Help to Buy schemes, and changes in mortgage products — but what current purchasing behaviours can we see from first time buyers and are their numbers likely to increase despite the wind down of Help to Buy set for 2021?

Read on to discover key drivers of first time buyer purchase behaviour and their outlook or alternatively dive straight into the full research report.

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In summary

FTB numbers are rising in all regions

With the exception of London, FTB numbers are increasing. The rate of increase has slowed recently, but in regional markets we expect there is room for more growth as mortgage products evolve and affordability pressures are less pronounced.

Average income to buy has increased

The average income required to buy a FTB priced property is up 6-12%, contributing to slower growth in FTB numbers.

FTBs are not compromising on property size

They have typically purchased smaller homes than all other buyer groups. However, the gap between average price paid by FTBs and all other buyers has been narrowing over the past two decades, indicating FTBs are setting their sights on larger homes than before.

First time buyer mortgages by region

First time buyer numbers are rising in all regions, with the exception of London. In London, numbers have dropped by 12%, however this is still less than the 25% decline in housing transactions overall in the capital, indicating that FTB purchasing powers are still strong. Help to Buy has been key in supporting this growth, accounting for 14% of all FTB purchases in 2018 across the UK.

Increase in income to buy required for first time buyers

In regions where prices have grown rapidly, the income and deposits required to buy are particularly high. Income to buy a typical FTB priced property (typically 10-15% lower than an average home) ranges from £35,000 pa in the North to £75,000 pa in London. Deposits currently average at 23% of the property price, from £26,000 in the North to £140,000 in London.

First time buyers are taking a longer term view

When we compare the average purchase price of FTB homes against the average purchase price of other buyer types in the market there isn’t evidence to show FTB are being put off by affordability pressures.

 

In recent years, it seems that the average price paid by FTBs and all other buyer types is narrowing. Higher loan to value mortgages and longer mortgage terms are allowing FTBs to take a long term view and aim for slightly larger homes than they would have previously bought.

So, can first time buyer numbers keep on rising?

First time buyer numbers are set to be flat in areas of constrained affordability such as London and the South East. In these areas, large deposits and higher income required to buy means a smaller pool of potential buyers. However, in the regional markets where there is a greater availability of higher loan to value mortgages and demand isn’t as impacted by affordability the outlook first time buyers is positive. The greatest potential is in the North West and Scotland where growth in FTB numbers has been most robust recently.

First time buyers are and will remain an important buying group in the UK housing market. With room for growth in regional cities and support for FTBs in the form of innovation in mortgage products in the South, they should remain a key segment for agents to target, as their buying power won’t be drying up any time soon.

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