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Only 7% of First Time Home Buyers Can Afford To Buy In Next 12 Months

Written by Sam Jones on 07 October 2012.

Recent research by LSL Property Services PLC the owner of Capital Fortune’s mortgage network, Home Loan Partnership, suggest that 94% of UK tenants aspire to become a first time home buyer but more than half (54%) stating they would not be in a position to do so immediately. They would hope to be homeowners however, within the next five years. The Company found that only 7% of prospective buyers believed they could afford to purchase a new home in the next 12 months.

The biggest hurdle to buying was the need to save for a deposit and 47% of prospective first buyer purchasers said they cannot get together a sufficient deposit. This appears a growing concern given the figure has risen from 41% only 3 months ago.

The high transaction costs associated with mortgages may also be a factor putting off new buyers with 14% stating these as a reason for not buying. Only 1 in 20 said the risk of falling house prices was a concern to them. The figures clearly reflect a pent up demand for home ownership but the requirement for high deposits at a time when both rent and costs of living are spiralling in comparison to wages, the ability to save is proving a challenge. There is no doubt that since stamp duty was reintroduced at the lower end of the market, the increased transaction costs may be having a deterrent effect. There is significant evidence that any generation of first time buyers entering the market, frees up the whole of the housing chain and allows properties to start moving, as people move up the ladder. This has therefore become a priority for Government.

Despite new funding for lending, the amount of first buyer transactions has actually fallen and in August 2012 this was down 3.7% on the same period last year.

House prices for first time buyers appear to be rising and in August this was up 4.7% to £141,918. On the positive side, both deposits and mortgage repayments appear to becoming more affordable, with reports that the average income of first time buyers in fact increased. The research found that deposits represented 73% of an average first time buyers annual income and this is a reduction from 81.7% the previous month. Mortgage payments also have come down in comparison to income now representing 22.2% from 23.4% in July.

Deposits in August represented 73% of the average first‐time buyer’s annual income,

down from 81.7% in the previous month, while mortgage repayments account for 22.2%, down from

23.4% in July. On an annual basis however, mortgage interest rates remain less affordable than this time last year, increasing from 4.6% to 4.8% as lenders continue to increase rates.

David Newnes, director of LSL Property Services, also owners of Your Move and Reeds Rains said: “There are encouraging signs that lenders are relaxing deposit requirements, but it’s not translating into increasing first time buyer purchases. In fact, following a seasonal drop‐off in August, first time buyer numbers are back to their level of a year ago. Lending criteria remains incredibly stringent, and lenders are cherry‐picking those new buyers with the very cleanest credit histories and largest incomes, limiting the number of buyers able to take advantage of deals with the very highest LTVs. “We may be seeing lenders begin to react to the Funding for Lending Scheme ‐ but it’s crucial that cheaper finance reaches a much broader selection of new buyers to boost buyer activity and alleviate the pressure on the private rented sector.”

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