The latest National Mortgage Index from Mortgage Advice Bureau seems to signal a correlation between the improving fortunes of first-time buyers and the difficulties of those looking to buy-to-let.
For example, it highlighted that the price of the average property bought by a first-time buyer dropped by 2.7% in January, which MAB suggested may be down to these buyers facing less competition from buy-to-let investors. Alongside that, the average purchase price of a buy-to-let property has plummeted by almost 13% year-on-year, which MAB argued could be down to a combination of less demand and investors looking towards cheaper priced areas.
Brian Murphy, head of lending at MAB, said that changes to the way lenders underwrite buy-to-let loans were “levelling the playing field between buyers who are borrowing to fund the purchase of their first home and investors who are borrowing to fund investment.”
He added: “It’s too early to tell if these initial observations will translate into an ongoing trend in 2017, but any increase in first-time buyer activity is a welcome sign as this, historically, has had a positive ripple effect across the rest of the market.”
Figures from the Council of Mortgage Lenders suggest first-time buyer prospects have been improving for a while. The CML reported that first-time buyers borrowed more than £53bn last year, up by 13% on the year before. That’s the highest figure borrowed by those taking their first step onto the housing ladder since the CML’s records began in 1974.
In total, just shy of 339,000 people became homeowners for the first time last year.
While the Government’s Help to Buy: mortgage guarantee scheme has now concluded, there remain a number of initiatives in place designed to help buyers take their first step onto the ladder.
What’s more, lenders are clearly more comfortable lending to borrowers with only a small deposit. Back in 2012, just 24 lenders would offer deals to buyers with a 5% deposit, and there were only 59 products to choose from, according to Moneyfacts. Today 53 lenders are in that market, with a total of 276 different deals on offer.
David Hollingworth, associate director at L&C, said that while many landlords would claim that they aren’t directly competing with first-time buyers, in reality the softening of the buy-to-let market has given first-time buyers more breathing space when making an offer on properties.
He continued: “The changes to the buy-to-let market, from the additional Stamp Duty rate to the changes to tax relief, could put upward pressure on rents. That won’t make life easier for first-time buyers trying to save for a deposit, but it could also strengthen their resolve to buy; they may feel they are better off putting that money into a mortgage payment of their own.”
John Azopardi, mortgage and protection advisor at New Leaf Distribution, said that the changes to Stamp Duty had “taken the heat” out of both the traditional buy-to-let market, and the interest in the let-to-buy market too.
He said: “Investors need substantial equity now. Whereas before they could get 75% LTV, that’s looking more like 60-65% now given the new ratios. People are rethinking whether there is any profit in buy-to-let today.”
That said, it’s still too early to write off the buy-to-let market. Rental prospects are good, with the Royal Institution of Chartered Surveyors suggesting rents will rise by 25% over the next five years, and the muted response to the housing white paper suggests the Government still has work to do to identify just how to tackle the housing shortage.
Hollingworth concludes: “There is still lots of uncertainty in the market; we will still see some movement from lenders reacting to the underwriting changes, and it will be interesting to see how many use a general affordability approach rather than a one-size-fits-all rental calculation. And from a tax relief point of view, while that will start to feed in from April, landlords won’t see it affect their tax bill until January 2019.”
