First time buyers with small deposits are returning to the market as lenders bring back high loan to value mortgages since the pandemic.
First time buyers with small 5% and 10% deposits are making a comeback as lenders introduce higher loan to value (LTV) mortgages according to Zoopla.
Uncertainty during the start of the pandemic in March 2020 resulted in lenders withdrawing mortgages with the number of first time buyers falling to the lowest level for four year.
Other buyers types such as home movers were not affected as many of these had equity in their property allowing them to apply for mortgages requiring deposits of 15% or more.
As the lockdown is eased, Zoopla expects demand to continue with more availability of low-deposit mortgages and existing homeowners looking for properties with more space as some home working will continue.
House price growth highest since 2017
The annual house price growth is at 4.3% in January 2021 compared to 1.7% this time last year and is the highest rate since 2017 with average properties values of £226,000.
Cities with the strongest growth rate are Manchester rising 6.8%, Liverpool up 6.3% and the North West region up 5.5%, Wales rising 5.6% compared to London of 2.8%.
For remortgage buyers with equity in their property from higher house prices combined with low interest rates allows them to release capital for a loft conversion or extension to create more space.
The table from Zoopla shows the change in average house price for the year from August to January 2021.
| Month | Average price | 3-month % |
Annual % |
|---|---|---|---|
| Aug-2020 | £222,200 | 0.7% | 2.9% |
| Sep-2020 | £224,000 | 1.9% | 3.6% |
| Oct-2020 | £225,300 | 2.0% | 3.9% |
| Nov-2020 | £226,000 | 1.7% | 4.3% |
| Dec-2020 | £225,800 | 0.8% | 4.2% |
| Jan-2020 | £226,600 | 0.8% | 4.3% |
Demand from buyers remains strong and is up 12.4% compared to this time a year ago with the number of first time buyers up 5.0% in the first six weeks of 2021.
The number of sales with property values of £100,000 to £250,000 have increased by 18% in the first seven weeks of this year with more buyers of lower property values requiring higher loan to values (LTV) returning to the market.
This has been boosted by the government’s Help to Buy equity loan scheme and lenders offering more mortgages with 5% and 10% deposits, although the numbers are much less than at the beginning of 2020.
Supply of new properties has reduced
The number of new homes on the market has reduced by -13.8% compared to a year ago and this applies across all regions in the UK while demand is up by as much as 40% in the North East.
There may be fewer suitable homes on the market as the equity release buyer can avoid downsizing and set-up a lifetime mortgage, accessing cash for a specific reason such as repay an interest only mortgage or buy a new car.
Higher demand from first time buyers is likely to continue after the stamp duty holiday ends as most are not affected and 78% of purchases are for properties up to £500,000 paying no stamp duty.
More first time buyers in the market will create an imbalance in the market as they do not have a property to sell and supply is likely to remain at a lower level.
See how much you can borrow as a first time buyer and the stamp duty for your property at this link:
First time buyer calculator with instant figures to buy a home.
The exception is London where although demand is down -17%, supply is not constrained as buy-to-let landlords are selling in large numbers.
About 13% of new properties for sale in London were previously rented as landlords may be reacting to possible changes to capital gains tax and a strong market for selling is encouraging them to take profits.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal. Learn more by using the property value tracker chart, mortgage monthly cost calculators and equity release calculator.
Start your first time buyer free quote and we can find the best mortgages and lowest rates for your home at this link:
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To release equity from your property for home improvements or holidays our advisers can recommend lifetime mortgages so begin your equity release quote for the latest provider offers.
