Comparing the first quarter in 2002 with 2003, Natwest has experienced a decline in the overall percentage of the first time buyer applicants. However this must be taken in context with the increase in remortgage business and the development of the business in areas not traditionally associated with first time buyers such as self-cert and Natwest One. In addition first time buyers have probably been a little more cautious in recent months.
One of the crucial areas is the borrower’s ability to service the larger loans now required and we have seen some lenders promoting affordability criteria and income multiples that are not always in the best interest of the borrower. We have always held a sensible approach and while the dynamics may have changed slightly in recent times ‘ first time buyers are getting onto the ladder later in life for one thing ‘ responsible lending should ensure the longevity of the market.
Premier Mortgage Management
While we do not operate in the purchase market a great deal, and seldom act for first time buyers, we have seen a general concern for a while, that first time buyers are being squeezed out due to high loan to values which require income multiples way beyond the norm ‘ all due, of course, to the continuing rise of property values. There is a greater need for bigger deposits as lenders are tightening their purse strings and are not as willing to give out the kinds of loans they have in the past. And there are clients for whom we arranged mortgages last year who, if they tried again now, would not stand a chance of getting a mortgage loan. Therefore, it is currently of some concern that prospective first-time buyers have little choice but to go ahead now if they are to join the property ladder. To wait will make it more difficult for them in the future.
Bristol & West Mortgages
The fall in first time buyer figures as reported by the Council of Mortgage lenders have also been reflected in our own experience. The number of applications from this sector is declining and the number of remortgage applications received is increasing substantially.
With house prices increasing as rapidly as they have done, outstripping wage inflation, it is inevitable that new borrowers will find it more difficult to get onto the housing ladder. Demographics also have a part to play, people marry later, student debts are becoming a factor, delaying the entry to the housing market of many potential first time buyers, and a declining younger population will have a long term effect on the number of new buyers in the market.
A correction in house prices or even a static period will mean that the rises in income typically experienced by younger people as they move up the career ladder will ensure that there is always a significant number of first time buyers.
There is no doubt that this problem is likely to get worse before it gets better and is only exacerbated by the Chancellor’s apparent unwillingness to assist first time buyers by, at the very least, raising the £60,000 stamp duty threshold.
At present there is considerable buyer apathy across the south east and this lack of confidence also includes first time buyers, which is critical because it is this group which traditionally kick-starts or resuscitates a dormant market. To this extent the problem could well become self-fulfilling.
A cut in the base rate would certainly come at an opportune time but one measure that is unlikely to help is the Chancellor’s attempt to move the market in the direction of long term fixed rates.
First time buyers who are already struggling to satisfy salary multiples will always be more inclined to get on the property ladder with the aid of short term fixed and discount rates so, as we saw with the CAT marked phenomenon two years ago, outside intervention in the mortgage market rarely brings about long term advances.
Over the last 12 months we have seen a slight decline in the number of first time buyer applications as a proportion of all new business. However, this could say more about the incredible popularity of remortgage deals in the current low interest rate environment than it says about the reluctance of first time buyers to take the plunge with a current account mortgage.
The industry is always concerned with the plight of the first time buyer as this is what fuels the housing market. And recent reports that house prices in the South have stopped rising coupled with stronger than expected rental demand suggest that first time buyers are not prepared or are simply not able to get on the property ladder at current prices. This will continue to be the short-term position until the market corrects itself.
Sole applicants have dropped from 32% of our business in 2001 to less than 25% in the current trading period, a reflection of more housebuyers joining forces with friends to afford rising property prices. After all, the current average gross income of £24,600 only facilitates a mortgage of around £80,000 to £100,000.
Despite the talk of an absence of first time buyers, research carried out internally suggests that first time buyers still represent some 39% of the total business, a similar proportion to the same time last year. The only significant change is a marked reduction in the number of first time buyers in London and the South East.
My view would therefore be that the sector is still a vibrant one but the prophets of doom seem to ignore the clear distinction between one geographic region and another. Many purchasers are anticipating house prices settling or reducing but not planning to buy for three to six months.