First Time Buyer House Prices Now at Record High

The average house price for a first time buyer has risen to a record high, despite uncertainty hitting the wider market ahead of last week’s EU referendum, according to the latest research by estate agents Your Move and Reeds Rains.

In May, the average first time buyer paid £173,282 to get onto the property ladder, up by 2.7% from £168,656 in April and by 15.8% from May last year. First time buyer house prices have now surged by more than £23,000 in the past 12 months, with the current average price being the highest on record.

Across the whole property market, house prices dropped slightly in May ahead of Thursday’s EU referendum, with the latest report from Your Move and Reeds Rains showing a monthly fall of 0.4%. However, the bottom of the market defied this trend, with strong demand from first time buyers.

Completed first time buyer sales totalled 24,900 in May, just 0.8% lower than the 25,100 recorded in April, despite many first time buyers being held back by a lack of homes coming onto the market ahead of the Brexit vote. The general trend remains strong, however, with first time buyer numbers now 13.2% higher than the 22,000 seen in February, and up by 5.1% on last year.

The Director of Your Move and Reeds Rains, Adrian Gill, comments: “May saw a crunch in the number of homeowners putting up a for sale sign, as many sellers held back to see the result of the EU referendum. But Brexit worries haven’t dented first time buyers’ appetite to own their own home. Many still want to capitalise on the record low mortgage rates available at the moment, which means that monthly mortgage repayments are increasingly affordable.

First Time Buyer House Prices Now at Record High

“The Brexit result won’t change the fact that huge numbers of aspiring first timers want to buy a first home, and lots won’t want to wait out the two years until the renegotiations over the EU have been completed. In the short-term, the wider market wobbles may benefit first timers, giving them the leverage to negotiate harder and get a good deal on purchase price. Canny first timers will use any Brexit lull as a chance to snap up a good deal and get on the housing ladder.”

He continues: “New builds still have a part to play in absorbing first time buyer demand. But the biggest and most immediate improvement would come from stimulating more activity from the top of the tail of the housing market. Just as many first timers can’t find the one-bed flats or two-bed houses they are typically looking to buy, some second steppers can’t find the three-bed homes they want to move into to suit their growing families. Even last time buyers looking to downsize and free up their larger family homes are often struggling to find suitable properties for sale. Housing chains are clogged up right the way through, from first time to last time buyers. The Government should support our sellers, making it cheaper to move house and adding much needed energy back into the market. Houses for sale are getting snapped up very quickly in this climate, but many more sellers are needed.”

First time buyer mortgages

The average mortgage rate for a first time buyer dropped further in May, to 3.08% – a new record low – following a fall of 0.37 percentage points over the past year.

Despite rising house prices, these cheaper rates mean that mortgage repayments have not increased significantly as a proportion of a first time buyer’s income. As of May, mortgage costs accounted for 21.1% of income – just 1.7 percentage points higher than a year ago.

Meanwhile, the average first time buyer deposit currently stands at £27,669, up by 12.8% (£3,146) from £24,523 last year. When compared to the average first time buyer income of £39,651, this represents an extra 29 days’ salary. As a proportion of income, the average deposit has risen by 6.1 percentage points over the past 12 months.

Gill says: “High LTV [loan-to-value] mortgage options like the Help to Buy schemes are giving more first time buyers a fighting chance of getting on the housing ladder. But putting together a chunk of cash to put down on a property remains problematic for many. Some first timers are helped by the bank of mum and dad, or through an inheritance or gift from a family member. Others are forced to move home with their parents while they save. But most continue to struggle to save while paying a considerable proportion of their income on rent.

“This highlights the importance of the rental market to first time buyer prospects. Maintaining a healthy private rental sector (PRS) is absolutely key to achieving homeownership aspirations. The Government’s current agenda – managing landlord demand by taxing the PRS more heavily – is likely to filter through to tenants in the form of higher rents, making the challenge of saving for a deposit even more difficult. The new PRS policies may well hurt the very demographic they are trying to help – first time buyers.”

Regional differences 

In four UK regions, the average first time buyer house price now tops £150,000, including the East of England (£161,088), the South West (£165,068) and the South East (£229,828).

London remains the most expensive region to buy a first home. First time buyers in the capital now pay an average of £338,074 to get onto the property ladder, saving an average deposit of £84,138 and taking out a mortgage worth £153,936. Despite these high costs, a total of 11,700 first time buyers in London purchased a property between March and May this year.

The North East and Northern Ireland are the cheapest areas for first time buyers to purchase a home. The average first time buyer home in the North East – currently the cheapest region – stands at £106,022, less than a third of the cost of the average price in London. These cheaper costs allowed 3,300 first time buyers to purchase a property in this region between March and May.

With many homeowners said to be discouraged from selling following the Brexit vote, the number of properties coming onto the market may dwindle, which could lower first time buyer levels. If you are considering an investment in the buy-to-let sector, use this period of uncertainty to purchase a lucrative property asset.