Surge in home loans to first-time buyers

What does this chart show?
That the number of mortgages going to first-time buyers has reached a 12-year high. There were 35,010 first-time buyer mortgages completed in August 2019, according to research from UK Finance, the industry body. This is the highest monthly total since August 2007, when 35,070 first-time buyers completed mortgages. The August figure was 0.7 per cent higher than in the same month last year.

What is behind the rise?
Market experts suggest a number of factors have underpinned increased activity among first-time buyers in recent months. Lenders are offering historically low interest rates on mortgages and making more deals available to borrowers with smaller deposits.

Government initiatives such as relief from stamp duty land tax for first-time buyers — as well as the longstanding Help to Buy equity loan scheme — have boosted their chances of securing a home. Economic factors also underpinning confidence for first-time buyers include wage growth and higher employment figures.

So is this good news all round?
Not entirely. The growth in first-time buyer activity has been accompanied by worries over the affordability of their housing debt. Lenders are offering more long-term loans, repayable over a maximum 40 years, which allow buyers to pass the necessary affordability tests by making smaller monthly repayments. However, the total interest bill is higher on these longer-term loans, and they may require repayment into retirement.

Help to Buy has also been criticised in a recent report by MPs on the public accounts committee for failing to make homes more affordable and providing insufficient protection for buyers. The PAC also questioned the value of the scheme, saying that three-fifths of those who used it to buy a new-build property did not need the support to buy the home in the first place.

There is also a long way to go when it comes to regaining historic average rates of home ownership among younger groups. Research by the Institute for Fiscal Studies found that only 27 per cent of 25-34 year-olds on middle incomes owned their own homes in 2016, a drop from 65 per cent in the 1990s.

What barriers remain to first time buyers?
High house prices, tighter conditions on borrowing, student loans and other debt taken on by young people are among the hurdles faced by many first-time buyers. Paul Stockwell, chief commercial officer at Gatehouse Bank, said: “First-time buyers are the bedrock of the housing market but are struggling to save for a deposit.”

He added: “At the start of this year, the average age of a first-time buyer was 30 but this now stands at 32. The average amount of finance being borrowed compared to the value of the property is also gradually creeping up towards 80 per cent, with a 0.4 per cent rise on last year, suggesting buyers need those extra couple of years to scrape the money together.”

There is also a gender gap when it comes to raising deposits, according to Santander. A 2019 study by the lender found that men typically have twice as much saved towards a deposit than women — £11,660 compared with £5,620. Of those surveyed, 35 per cent of men and 48 per cent of women said they had no deposit savings at all.