In Savills’ residential market prediction, the firm said rising house prices, unemployment, furlough and the withdrawal of high loan to value (LTV) mortgages had caused the first-time buyer market to shrink from 30 per cent in March 2020 to 24 per cent a year later.
It said the mortgage guarantee scheme could support new buyers by helping 50,000 borrowers a year if it reached a similar scale to the previous scheme which ran between 2013 and 2017. The report also said the end of the stamp duty holiday would give first-time buyers a competitive edge.
However, government initiatives will continue to be needed by new buyers going forward, Savills predicted.
It said the end of the Help to Buy scheme in 2023, which supports 40,000 purchases a year, would result in a decline in market share and the First Homes scheme is unlikely to make up for this loss.
The government aims to make 1,500 properties available under the First Homes scheme by the end of this year, with a total of 10,000 homes dedicated to the programme over an undetermined period.
The report said: “Any recovery in first-time buyers will have to be backed by various forms of government support, or by continued large contributions from the bank of mum and dad.”
Rising prices and interest rates
House price growth is expected to reach annual growth of nine per cent by the end of the year and after 2021, will be capped by an earlier than expected increase in interest rates.
Savills forecast the Bank of England base rate would rise to 0.25 per cent by 2023 before increasing to 0.5 per cent in 2024. This is ahead of its original view that the rate would not reach 0.5 per cent until 2025.
Now Savills predicts the base rate will be set at 0.75 per cent by the end of 2025.
“The recent strong price growth, combined with an expectation that interest rates start to rise a little earlier than previously anticipated, leaves much less capacity for price growth post-2021,” it said.
Transactions will begin to fall towards the end of this year but will reach 1.62 million overall.
This will be the first time residential transactions have exceeded 1.6 million since the 2007 financial crisis. It is also 35 per cent higher than the average number of transactions for the five years prior to the pandemic.