A recent survey reports that for four consecutive months, there have been fewer property purchases with a larger deposit and more with a smaller initial down payment. This development suggests that first-time buyers are increasingly making a come-back to the housing market.
Since the beginning of 2017, Chartered Surveyor's e.surv's mortgage monitor has recorded an increase in the mortgage market share of smaller deposit buyers. In December 2016, small deposit buyers – who are typically first-timers – made up just 16.1% of the mortgage market. In May, however, this stood at 21.3%.
Activity in May does represent a mild slowdown from April 21.5. But none-the-less, home-buyers with a smaller deposit are keeping hold of their higher share of the housing market. Meanwhile, the proportion of large deposit home buyers fell yet again in May to 33.9% of mortgage loans.
Mid-market deposits were the only group who saw a rise in the share of mortgage activity and this could spell welcome news for smaller deposit buyers. That’s because signs that existing home-owners are trading up, suggests there will be greater availability of properties more suited to the smaller deposit or first-time buyer market.
The report shows that north west England is the most popular region with smaller deposit home buyers, where they made up 31.1% of all property purchases with a mortgage, during May. Yorkshire, Northern Ireland and the Midlands were next in line and small deposit buyers made up over a quarter of the market in all three areas.
Those buyers with more cash to put down on a property, meanwhile, were making most purchases in Scotland, south east England, London and Northern Ireland. In Scotland, some 40% of property purchase were made with a large deposit.
“We are detecting an apparent shift in the geographical distribution of lending overall - with London and the South East growing quieter, and areas North of Birmingham showing growth in applications,” said Richard Sexton, director of e.surv, in the press release.
Low Interest Rates Contribute to Small Deposit Comeback
One reason behind the upsurge in small deposit buyers is the prolonged period of ultra-low mortgage interest rates. Although the average 2-year fixed mortgages for 75% LTV has begun to edge marginally higher in recent months, Bank of England (BOE) figures show the 5-year fixed rate for 75% LTV, hit a fresh record low of 2.03% in May.
With such low fixed rates available, the mortgage repayments are much more affordable. That’s particularly beneficial for property purchasers with a smaller deposit, but a good job and prospects for wage increases and promotions in the coming years.
However, there are some signs from the BOE that future rate rises may be on the cards due to rising inflation. That means that right now could be the best time for first-timers and low deposit purchasers to enter the market and claim those excellent mortgage rates.
“Low mortgage rates and government schemes are helping more buyers onto the ladder and we are seeing this happen in greater numbers than it was at the end of 2016,” Richard Sexton said.