UK house prices hold firm as new buyers continue to enter the market
New restrictions to control the spread of Covid-19 are set to support buyer appetite in the near-term, according to our House Price Index.
UK house prices continued to climb in August, with the annual growth rate edging up to 2.6%, from 2.5% in July.
It means that the average UK house price is now £218,262, according to our latest House Price Index.
What’s happening to house prices?
Annual house price growth in August ranged from 1.7% in the north east, to 3.3% in the north west, Yorkshire & the Humber, and Wales.
Eight of the 20 cities tracked by our House Price Index had annual house price growth of more than 3%.
Nottingham and Manchester led the pack, with house prices up by more than 4% year-on-year. Only Aberdeen registered a decline.
What’s driving these figures?
A mismatch between buyer appetite and the number of homes for sale is continuing to support house prices.
And as new buyers continue to enter the housing market, the impetus for price rises shows no signs of slowing.
Buyer demand since the start of the year is now 39% higher than the same time spell in 2019, with the pandemic driving much of this, as last month's House Price Index revealed.
The uptick in buyers has also led to more homes coming onto the market, as homeowners look to sell their existing property and buy elsewhere. The supply of homes for sale is now 10% higher than a year ago.
Meanwhile, new sales agreed over the last nine months are 3% higher than the same period last year – even with the closure of the housing markets across the UK during lockdown.
But the three- to four-month lag between sales being agreed and legal completion means that the number of homes sold this year is set to be 15% lower than in 2019, with transactions spilling over into 2021.
Who’s interested in buying right now?
First-time buyer appetite to get onto the housing ladder jumped when the English housing market reopened for business in May after a 50-day shutdown.
However, it has softened over the last two months as growing economic uncertainty and reduced availability of higher loan-to-value mortgages hit first-time buyers.
And while first-time buyer demand remains well above 2019 levels, it is now back in line with pre-pandemic levels.
But existing homeowners are taking up a greater share of home moves. Homeowner appetite to trade up or down the housing ladder is 37% higher than pre-Covid-19 levels and is 53% higher than this time last year.
This in turn is resulting in more homes coming onto the market at a higher price point.
Richard Donnell, research and insight director at Zoopla, said: “A change in the mix of buyers is supporting market conditions with sustained demand from equity rich existing owners seeking more space and a change in location.
“In contrast, first-time buyer demand is weakening. First-time buyers have been a driving force of housing sales over the last decade.
"They remain a key buyer group but lower availability of higher loan-to-value mortgages and increased movement by existing homeowners means a shift in the mix of buyers into 2021.”
What’s in store for the rest of the year and into 2021?
We don’t expect much change in current housing market trends over the rest of the year, although a further softening in buyer demand is likely over the coming months.
Donnell explained: “Housing market conditions remain strong as new restrictions are introduced to control the spread of Covid-19. These changes are likely to continue to support housing demand in the near-term as the importance of the home grows.
“However, the housing market will not remain immune to the impacts of weaker economic growth and rising unemployment.”
Coronavirus hits first-time buyers as mortgage availability for lower deposits falls sharply
1 in 5 first-time buyers has delayed their property purchase, with nearly half of first-timers now worried about their financial security.
irst-time buyers are having to put their moving plans on hold as a result of the impact the coronavirus pandemic has had on mortgage availability and income stability.
Nearly half of people planning to buy their first property say they have had to delay their plans by an average of nearly a year as a result of the pandemic.
One in five first-time buyers has had to pull out of a purchase as a result of lockdown, while 49% saying they are now worried about their financial security, according to mortgage lender Aldermore.
Overall, four out of 10 first-time buyers say the pandemic has made it harder for them to get on to the property ladder, with a similar proportion saying it has made it more stressful.
What’s happening?
First-time buyers looking to get on to the property ladder are facing issues on three fronts:
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Financial instability
The pandemic and its associated lockdown has hit many people’s income and job stability.
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Cautious lenders
Mortgage lenders have become more cautious, leading many to pull their range for borrowers with small depositsThere are now no mainstream mortgages for people with only 5% to put down, with only a handful of specialist products remaining which require either a guarantor or that borrowers live in a specific area or work in a certain profession. There are also now only 45 mortgages for people with a 10% deposit.
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Competition from landlords
Finally, the end of lockdown has led to a steep increase in property transactions, with first-time buyers once again facing competition from investment landlords who are keen to take advantage of the stamp duty holiday.
Why is this happening?
Mortgage lenders have been pulling products across the board as they review their ranges in the light of coronavirus.
The total number of residential mortgages has more than halved since the beginning of March, dropping from 5,222 to 2,338 now, according to financial information group Moneyfacts.
But products aimed at first-time buyers have been particularly hard hit as lenders reassess the level of risk they are prepared to take.
Mortgages for those with only small deposits are generally considered to be higher risk than those for people with a large equity stake in their home, as there is more chance of the borrower ending up in negative equity if house prices fall.
As such, the number of deals for people borrowing 90% of their home’s value has dropped from 779 in early March to just 45 now.
At the same time, lenders have repriced high loan-to-value mortgages.
While the interest charged on the average two-year fixed rate mortgage has increased by 0.1% during the past six months, rates on loans for people borrowing 90% of their home’s value have jumped by nearly 1% to average 3.53%, while the cost of the few remaining 95% loan-to-value deals has risen by 1.48% to 4.74%.
What you can do?
Don’t panic if you are a first-time buyer hoping to get on to the property ladder. There are still steps you can take to increase your chance of getting a mortgage.
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Increase your deposit
If you have decided to delay your purchase by a few months, take the opportunity to try to save more towards your deposit. Borrowing 85%, rather than 90%, of your property’s value will increase the number of mortgage deals available to you from just 45 to 350.
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Improve your credit score
You can increase your chances of qualifying for a mortgage by ensuring your credit score is as high as possible. Make the time to review your credit report to ensure it is up to date and accurate, and, if possible, take simple steps to improve it, such as paying off your credit card in full each month and ensuring you settle all of your bills on time.
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Cut back on your spending
Affordability plays a key role in whether or not lenders approve you for a mortgage. As such, the lower your outgoings are relative to your income, the more chance you will be accepted for a mortgage. Lenders look at between three and six months’ worth of bank statements when assessing mortgage applications, so the sooner you can start cutting back, the better.
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Use a broker
With deals for first-time buyers currently scarce, using a broker could help you secure a mortgage. Not only will they be able to scour the market on your behalf to find a deal that suits your circumstances, but they will also be able to advise you on which lenders are more likely to approve your application.
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Ask the Bank of Mum and Dad
With the Bank of England base rate at a new record low, savings aren’t earning much interest at the moment. But interest rates on an 85% loan to value two-year fixed rate mortgage are an average of 0.73% lower than for a 90% one. See if your parents would be prepared to lend you a lump sum to help you qualify for an 85% loan to value mortgage, in exchange for you paying them a higher rate of interest on the money than their bank would.
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Consider buy-to-let
If you can’t afford to buy in your local area but still want to get on to the property ladder, consider purchasing a property in a cheaper area and renting it out. The Legal & General Mortgage Club has seen an 18% increase in searches for first-time buyers wanting to enter the buy-to-let market since the beginning of September.