First-time buyers: Caught between pause and potential as the Budget looms – Bamford

Gross lending figures edged up slightly in July to £24.3bn, while house purchase approvals nudged higher to just over 65,000. On the flip side, remortgage approvals dropped, although I think we’d all agree that maturities remain the bedrock of this market.

What should we take from this? Most obviously, that demand for house purchase remains resilient, and the further positive here is that some of the recent changes should actually strengthen that, particularly in terms of bringing down affordability hurdles and making it easier for more borrowers to get the loans they require.

Within that steady picture, my view is first-time buyers deserve closer attention, because they may soon be standing on the edge of a significant shift.

Since April, many first-time buyers have once again been subject to stamp duty after the temporarily higher thresholds were allowed to lapse.

Relief now extends only up to £300,000, compared with the £425,000 limit that had been in place. For many in the South East and other high-priced regions, this means paying stamp duty tax to HMRC as part of their very first purchase. This being the case, it was obviously intriguing to read the rumours of what the Autumn Budget might deliver by way of reform.

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Impacts of potential reform

If the Chancellor chooses to abolish stamp duty for first-time buyers – or indeed, for the market more broadly – it could represent a genuine game-changer. However, before any such policy takes effect, there is every chance that we will see a short period of stasis.

Households have little incentive to rush into transactions in September or October if they believe such a ground-breaking decision could be only weeks away. That pause is not weakness, it is rational behaviour. It means the real story could be one of pent-up demand that is only released once the policy position becomes clear.

We have seen this many times before. Perhaps, most notably back in 2016, when changes to stamp duty on additional properties were announced, and the market saw a flurry of activity by landlords in the months beforehand followed by a sharp dip.

It is the classic ‘swings and roundabouts’ effect that often characterises UK housing. If a bold move on stamp duty is forthcoming, we should expect the same rhythm to play out: a quiet patch followed by an upswing that could be particularly supportive of first-time buyer activity.

This potential policy shift is also not happening in a vacuum and there are other positives that can add to a momentum changer for first-timers.

The mortgage product landscape has already become more conducive to them. Over the past 12 months, we have seen the steady increase in high-loan-to-value (LTV) product numbers.

The 95% LTV market is far more competitive than it was a year ago, while innovations at 99% and even 100% LTV are now back on the table. Plus, we have specific products based on existing renters’ track record of paying rent allowing these individuals to get on the ladder with no, or very low, levels of deposit.

Plus, all lenders have a little more flexibility on loan-to-income (LTI) multiples following the Financial Conduct Authority’s (FCA’s) adjustment to the high-LTI flow limit.

Add to this the broader backdrop of stabilising/falling interest rates, and you start to see an environment where the financing side of the equation looks less daunting than it did in 2023 or 2024. That doesn’t mean affordability pressures have disappeared – wages, prices, and deposits remain significant hurdles – but the trajectory is moving in the right direction.

Housing supply is still an issue

Yet there is a caveat that cannot be ignored, of course: housing supply. The government has set itself the target of delivering one-and-a-half million new homes by the end of the Parliament.

As things stand, delivery looks well short of that ambition. Without an increase in the volume of starter homes being built, a cut to stamp duty risks fuelling demand without a corresponding rise in supply. The danger is that some of the tax saving simply capitalises into higher offers, valuations and prices, leaving first-time buyers no better off in the round.

The other piece of the jigsaw is the private rented sector (PRS). The government has made no secret of its political priority to support first-time buyers while tightening the screws on landlords. Section 21 evictions are on their way out and further taxes/National Insurance on rental income are being mooted.

In theory, this may push some properties out of the rental sector and into owner-occupation, increasing the pool of homes available to purchase. But there is a balance to strike. Those who cannot yet get on the ladder still need access to good-quality rental accommodation. If the PRS is hollowed out too far, the risk is that both affordability and security worsen for tenants.

For advisers, this cocktail of dynamics means the coming months will be critical. Clients will need to be guided through a period of uncertainty where the temptation will be to hold off until the Budget delivers clarity. At the same time, advisers must stay on top of an evolving product set that is becoming ever more tailored to the needs of first-time buyers.

The big picture is one of cautious optimism. Approvals are up, product innovation is back, and political will is aligned behind helping new buyers. If the Budget does indeed scrap stamp duty in a way that meaningfully reduces upfront costs, we could be on the cusp of a much stronger period of activity from first-time buyers.