With constant reassurance that the housing market is cooling off, first time buyers waiting to set up home are understandably keen to get started. But don't crack open the Champagne too soon. This year's Annual First Time Buyer Review from the Halifax reveals that it will be some time yet before property becomes more affordable.
In 2004, the crude average price paid for a house by a first time buyer in the UK was £131,024 – 16% higher than in 2003 when the average price was £112,541. The number of first time buyers in the UK fell by almost 2% in 2004 to an estimated 361,000 - the lowest annual total in 20 years. They accounted for less than three in 10 of all new mortgages in 2004. But why is the property game still more about snakes than ladders and what does the future hold?
Location, location, location
Think less about where you would like to live and more about where you can afford to live. The choice is depressingly slim. For starters, Halifax found that of the 597 main UK postal towns, 548 - a whopping 92% - were unaffordable for the typical first time buyer in 2004. This figure increased to 95% in East Anglia, the South West, South East and the North. Good news for those house hunting in Scotland or Northern Ireland though, where property is more affordable. In fact, Lochgelly in Scotland is the most affordable town in the UK for a first time buyer, with an average property price three times higher than a first timer's average income. But heading north is not the solution. Previously offering more opportunities for first time buyers, the proportion of unaffordable towns in the North has risen from 54% in 2002 to 95% in 2004. Eight of the 10 most affordable towns are outside the south of England. Erith in Greater London and Gosport in Hampshire are the two exceptions. The least affordable town for a first time buyer in the UK is Gerrards Cross in Buckinghamshire where the average property price is 18 times their average income. All 10 of the least affordable towns are in London and the South East with the exceptions of Knutsford and Altrincham in Cheshire and Ilkley in Yorkshire.
First-time buyer mortgages
Size matters
First-time buyers put down an average deposit of £26,455 in 2004. An impressive amount, this accounted, on average, for 20% of the value of the property. Regionally, the average deposit varied from £48,364 in Greater London to £13,366 in Northern Ireland. The equity put into a first home has almost doubled since the late 1980s. That is not all that's increased. The average age of someone buying his or her first home has risen in recent years with the average age in 2004 being 34 years. This compares with an average age of 32 in 1999. All of which goes to show that people are waiting longer - and saving more - to afford property. The proportion of those aged 25 and under buying their first home remains low, at just 16% of first home purchases. Smaller is beautiful with a first home. More than seven in every 10 first time properties purchased in 2004 were terraces (43%) and flats and maisonettes (28%). Detached homes and bungalows accounted for only 7% of all purchases.
The Future
The proportion of first-time buyers is likely to increase from its current record low during the next few years according to the Halifax. Earnings growth is set to outstrip house price growth in 2005 and over the medium-term. Earnings are expected to increase more rapidly than house prices, leading the ratio of house prices to earnings to decline from its current historically high level. This reduction will begin to make it easier for first-time buyers to get onto the housing ladder. In particular, we expect the proportion of first-time buyers to increase steadily from a record low of 29% in 2004 as affordability improves.
Stamp it out
As if they didn't have better things to do with their cash, the average first time buyer now pays more than £1,300 in stamp duty, equivalent to around 5% of their deposit or nearly two and a half weeks of their gross annual income. More and more first time buyers are falling into the stamp duty net because the government has declined to index link the £60,000 threshold. The threshold has remained unchanged since 1993. Halifax is launching a campaign to persuade the government to reform stamp duty on residential property. It would like to see the government raise the £60,000 stamp duty threshold to allow for the rise in house prices since it was last increased in 1993 and to commit to increasing the thresholds in line with house price inflation in the future.
'Affordability has become a serious issue making it very difficult for those looking to get onto the housing ladder for the first time,' says Halifax Chief Economist Martin Ellis. 'This is highlighted by the sharp decline in the number of first-time buyers over the past two years to the lowest level since 1981. 'There is some light at the end of the tunnel, however. We expect the situation to improve somewhat as earnings growth outstrips house price growth over the next few years. This will make it easier for first-time buyers, thereby boosting the number from its current historically very low level.'
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