Home movers are now more likely to buy houses than first time buyers. Despite first time buyers making up the biggest proportion of the UK property market for the first time in 23 years in 2018, their numbers have dropped again. Industry experts now reckon that home movers will overtake first time buyers again in 2020 and this trend will continue into 2021.
The reason (of course) comes down to the Coronavirus/Covid-19 pandemic. Financial difficulties, persistently high house prices, and a reduction in high loan-to-value mortgage products are the main reasons why first time buyers are struggling to get on the housing ladder in 2020.
However, for existing homeowners with equity in their properties, Covid-19 has caused less of an issue. House prices have continued to hold up and the recently introduced Stamp Duty holiday has caused a house buying boom, helping home movers to overtake first time buyers in annual numbers.
The rise and fall (and rise again) of the first time buyer
First time buyers have long been described as the ‘life blood’ of the housing market. However, many first time buyers have been priced out of the market over the past few decades due to dramatically rising property prices and stagnant wages. After the 2008 financial crisis, mortgage lending also became extremely strict, requiring buyers to raise large deposits in order to take out a mortgage. In 2009, the average deposit was 20%. For a property worth £150,000 (roughly the average house price in 2009) that would be a deposit of £30,000.
Over the past decade, the Government introduced a range of schemes such as Help to Buy and Shared Ownership in an effort to help more people onto the housing ladder. These schemes, combined with low interest rates and an increasing availability of high loan-to-value mortgage products, helped the number of first time buyers to start increasing again. In 2018, the number of first time buyers hit 372,000 – the highest number since 1995. This meant that first time buyers accounted for 50% of all home purchases with a mortgage, up from 38% in 2009. Of course, this was before Covid-19 came along.
How has Covid-19 affected the UK housing market?
When the country initially went into lockdown in March 2020, the housing market effectively shut down. Prospective buyers were no longer allowed to view properties in person; conveyancers were forced to suddenly adapt to homeworking, causing administrative delays; and removal companies could not help people move house.
Once the Government gave the all clear for conveyancing transactions to continue, the market was understandably cautious. With so many people in financial difficulty due to business closures, job losses and reduced salaries, lenders (who have also been supporting their existing customers with mortgage holidays) have tightened their belts and severely restricted their lending to new customers.
Why have home movers become more common than first time buyers again?
Inability to get a mortgage
Before Covid-19, there was a wide range of high loan-to-value products. Since Covid-19, lenders have re-evaluated risk and withdrawn the vast majority of these products from the market. Whereas before, lenders were prepared to lend where the borrower could raise a 10% or even a 5% deposit, most are now requiring a deposit of at least 15%. Considering the average house price in the UK is currently £237,963, this means raising a deposit of nearly £36,000 – an impossible sum for most people.
Furlough leave and reduced incomes
Redundancy and furlough leave has overwhelmingly affected the young, who are also less likely to be homeowners. At the start of lockdown, HMRC reported that half of under 25’s were placed on furlough leave. They were also more likely to lose their jobs with the unemployment rate for 16-24 year olds at 13.1% compared with 4.1% for the whole of the UK.
With higher financial uncertainty and fewer job prospects, young people are likely to find it much harder to start saving for the enormous deposit they need to buy a home.
Stamp Duty holiday
It is not just the issues for first time buyers that have caused them to slip behind home movers. Numbers of home movers have boomed in recent months due to the Stamp Duty Land Tax holiday which has cut Stamp Duty in England and Northern Ireland to zero for all main residence property purchases up to £500,000. This means that until 31 March 2021, home movers could save up to £15,000 in upfront tax. Similar schemes have also been introduced in Wales and Scotland.
For first time buyers, the Stamp Duty Holiday is not much of an incentive to buy because in England and Northern Ireland, they are eligible for 100% relief on purchases up to £300,000 and partial relief on purchases up to £500,000 anyway.
Is now a good time to move house?
For those looking to take the first step onto the property ladder, you will find a less generous mortgage market and will likely need to raise a higher deposit to compensate. But, if you are able to raise the deposit, low interest rates (due to the Bank of England Base Rate being cut to 0.1%) will likely make your mortgage very affordable. You will also be eligible for the Stamp Duty holiday of up to £500,000 (or equivalent tax holidays if you live in Wales or Scotland).
Another key point to remember is that house prices have not tangibly been affected by the Covid-19 pandemic. So, if you are only looking to buy if you can snap up a bargain, this may not be the right time for you. However, for home movers, this means that you are still likely to get a good deal when selling your property. Therefore, now may be a great opportunity if you are thinking about moving.
Get expert advice about buying or selling your home
At Devereux & Co, we have a team of specialist conveyancing solicitors who can provide practical advice about buying and selling your home.
Whether you are a first time buyer or home mover, we will handle all the legal aspects of your conveyancing transaction efficiently and cost effectively.