First-Time Buyers Achieve Strong Return to UK's Housing Market

As the UK’s housing market faces an unusually high level of uncertainty, recent data show a welcome improvement in the fortunes of the country’s first-time buyers in the second quarter of 2016.

The latest data and analysis from the Council of Mortgage Lenders (CML) highlights the level of first-time buyer activity so far this year. After a tough few years, these latest figures have proven to be surprisingly positive.

The CML’s regulated mortgage survey showed that first-time buyers took out 34,300 mortgages in June, a 24% increase from May. The value of those mortgages totalled £5.5 billion which was a 28% increase from the previous month.

Data for the second quarter was equally buoyant. The total amount of mortgage borrowing by first-time buyers reached £13.7bn, representing a 23% from the first quarter. By number, mortgage loans secured by first-time buyers rose 23% to 87,100 between April and June, from the first three months of the year.

“First-time buyers are continuing to drive house purchase lending, outperforming home movers for the third month running,” said CML director general Paul Smee. “More loans were advanced to them in June than at any time since August 2007.”

There have been a number of developments supporting the increase in first-time buyer activity. One of those was the Government’s mortgage guarantee scheme. After being introduced in 2013, the scheme has helped almost 79,000 home buyers to-date with analysis showing some 80% of those buyers were first-timers.

The CML is full of praise for this particular Government scheme, which it says has worked well and at a manageable level. Not only has it encouraged lenders to grant higher loan-to-value mortgages to Britons with a job who can afford the regular monthly mortgage repayments, but the take up hasn’t been so large that it will cause a problem for the mortgage market once it is withdrawn

“The scheme played a key role in jump starting higher LTV lending at a time when confidence around house price growth – and the economy – was low,” the CML said in a report. “But, as time went on, it has also been important for lenders to operate outside of the scheme, which shows confidence has returned to the market.”

The mortgage guarantee scheme works by providing a Government guarantee to lenders who offer buyers 95% LTV mortgages. This leaves participating lenders liable for just 5% of the mortgage if the borrower were to default.

Other signs of confidence returning to the UK’s housing market in the months and quarters leading to the end of June 2016 come in the form of a further decline in arrears and repossessions figures.

The number of mortgages in arrears fell again in the second quarter of this year to the lowest level since records began in 1994. At the end of June there were 92,500 mortgages in arrears of at least 2.5% of the balance, down from 95,900 in the first quarter and 13.4% lower than a year ago.

Residential property repossession rates, meanwhile, fell to 1,900 between April and June down from 2,100 repossessions in the second quarter.

The improvement in the mortgage arrears and property repossessions data highlight the UK’s residential property market was running well in the lead up to the referendum, despite the high level of average prices. It also suggests the market is well-placed to weather any problems or loss of confidence that arise in the second half of 2016.