When it comes to first-time buyer activity, the latest figures out of UK Finance appear to show a particularly healthy market, at least towards the end of last year and, judging by the mood music that is playing right now, also into 2025.
The latest figures show that, during Q4 last year, first-time buyer numbers were up by almost a third compared to the same three-month period in 2024. Over the course of the year as a whole this meant that first-time buyer numbers were up by 16.4% year-on-year.
Of course, as UK Finance itself points out, this growth – along with a similar level of increased activity for home movers – may be put down to the ‘rush’ to get completed prior to the end of March when of course the stamp duty thresholds return to their old levels, thus increasing costs for those who won’t complete before the 31st March.
Certainly, one would expect to see growth in first-time buyer activity throughout the course of Q1 this year when those figures are released, but perhaps it will be future quarterly data which tells us the real story about how much the stamp duty changes impacted the market, and how much they are going to act as a drag (or not) on transactions when the thresholds return to their previous levels.
One of the key factors which might well determine how healthy the first-time buyer market will be post-stamp duty threshold changes is whether the regulator feels it can give lenders the requisite leeway the Government is seeking in terms of allowing them to lend more than 15% of new mortgages at over 4.5 times income.
UK Finance points out that, in certain areas of the country, ‘particularly in and around London’, this mortgage lending rule, along with tightened affordability because of higher rates, has made it much more difficult for first-time buyers to get on the ladder. Not least because they have required much higher deposits in order to compensate for the smaller loan amounts lenders have been able to offer.
It suggests that this has accounted for far greater use of parental/family assistance in order to square that particular loan level/deposit requirement circle, and one would surmise that if the regulator were to ease back on its rules, then this would in turn open up greater opportunities for those who might not be able to save such a large deposit.
While affordability undoubtedly plays its part in terms of being a major obstacle to overcome, I would still suggest that saving for a big enough deposit is just as important, and if we can allow greater lender flexibility in the areas outlined above, then it’s also going to make life easier for those who can only get to a small deposit, but would still be a good credit risk for the lender based on all factors.
Things have gone a little quiet in terms of the progress, or otherwise, that is being made on reviewing, and hopefully amending, these mortgage lending rules, however one would hope the work is being carried out and we get an idea of the potential changes that could be introduced very soon.
Certainly, in the wake of a somewhat negative stamp duty shift for first-timers in that they are going to be paying more of this tax, this rule change would be a positive, hopefully allowing lenders to determine their own risk levels and just how much they want to lend to first-time buyers, given their greater understanding of what works risk-wise for them and the customer.
While the rules were undoubtedly required at the time, their catch-all nature unfortunately becomes less welcome when you have a highly-competitive space with over a hundred lenders, many of whom want to make more of their new mortgage business available to first-time buyers but are unfortunately hindered by the current rules.
One can’t see this Government being too enamoured with the status quo being maintained, especially when it has explicitly asked regulators to look at those rules which it believes are stopping growth-generating activities, like greater numbers of housing transactions which we know add a considerable amount to UK GDP.
We need an announcement soon, and one that allows lenders to make their own lending decisions based on their own risk appetite, would be the most welcome of all.
