First time buyer plight increases following latest rate rise

The National Association of Estate Agents (NAEA) has expressed its concern over the plight of first time buyers following this month’s interest rate rise to 5.5%. With the NAEA’s latest housing market statistics demonstrating a drop in first time buyer share of the market from 12.6% in March to 10.3% in April – the lowest figure recorded since April 2006 – it is clear that this group has been particularly struggling recently. The recent base rate rise will only serve to increase their difficulties further.

With affordability being a major issue in recent years, the percentage of sales to first time buyers has dropped dramatically. In 2000 the average monthly share of the market for first timers was 29%. By 2006 this figure had gone down to just 11%.

The boom of buy to let investors has been having a detrimental effect on this group getting onto the property ladder. The influx of buy to let investors has led to an acute shortage of properties in this price bracket suitable for first time buyers, as investors have been taking what fitting properties there are and using them for investment and rental purposes. Couple this demand for good investments with the average entry level of getting onto the property ladder also steadily rising, buy to let investors are indeed helping to fuel house price inflation. This soaring property market is pricing out first time buyers as affordability in the housing market is steadily rising.

Interest rates are having major repercussions on mortgage repayments and in turn first time buyers. Over the past five years first timers have faced fluctuating interest rates, with them decreasing to as low as 3.5% in July 2003 and rising to as high as 6% in February 2000. With interest rates currently fixed at 5.5%, this instability is causing more uncertainty in an already hesitant market. If interest rates continue to rise, this vulnerable market is set to struggle further as wages are not increasing in line with the rate rises.

The stamp duty threshold is also a major concern due to it currently being weighted at 1% for properties priced at £125,000 to £250,000. This threshold is impeding on first time buyers buying power due to the current legislation ruling that 0% stamp duty needs to be paid on properties placed on the market below £125,000. Unfortunately, there is an acute shortage of properties in this price bracket and the possibility for first time buyers especially in the South and Greater London, to find a home which will allow them to pay 0% stamp duty is virtually impossible. Therefore, this market will more than likely have to pay the 1% stamp duty if they bought a modest first home and will consequently have to save thousands to even contemplate doing so.

Finally, the average household budget has been tightened significantly in the last few months with higher council tax, utility bills and mortgage repayments acting as a deterrent to people who would have otherwise looked to take the next step up the ladder.

Stewart Lilly, President at the NAEA, comments: “Abolishing stamp duty for first time buyers is one quick way the government could make a difference to this struggling group. We have continually urged for the government to make more concerned judgements for this fragile market, who are struggling to get a foothold due to this turbulent environment in which we live.

“We urge the government to wake up and start seeing that this issue is something that needs addressing, before it escalates further. This latest generation should be allowed to get onto the property ladder like their parents, and their parent’s parents did. Action is needed.”