GOOD news for first-time buyers – house prices are starting to fall. According to the latest Nationwide House Price Index, UK property prices fell for the second consecutive month in April while at 2.6 per cent annual house price growth is at its lowest level in four years.
Surely that means first-time buyers, who have been priced out of the market by soaring prices in recent years, will finally be able to get a foot on the ladder?
Not exactly. While Jonathan Hopper, managing director of search company Garrington Property Finders, said that two consecutive months of falls “suggests this might be the start of a downturn rather than a dip”, Brian Murphy, head of lending at the Mortgage Advice Bureau, noted that property prices remain stubbornly high.
“Whilst there will be a few who suggest that this is the start of an overall downslide in the market, it’s important to consider all the elements at play,” he said.
“The average house price as per the Nationwide report is still the highest since 2007, and activity levels remain broadly stable, both in terms of transaction volumes and lending.”
One of these factors is that changes to taxation on landlords and higher lending criteria for buy-to-let mortgages is discouraging potential landlords from entering the market. That has the effect of reducing competition and, as a result, the prices paid will fall.
The looming general election is also likely to be having an effect, with Mr Murphy noting that “past experience around the effect of elections on the housing market has been a minor dip in activity in the weeks running up to an election”.
Another, more pervasive, factor is affordability, with Nationwide’s chief economist Robert Gardner noting that rising inflation coupled with stagnating wages means people simply have less spare cash to play with.
“Household budgets are coming under pressure, as wage growth has moderated and inflation has accelerated,” he said. “The household saving ratio, which measures how much income goes unspent each quarter, fell to an all-time low of 3.3 per cent in [the fourth quarter of 2016] on data extending back to 1963.”
For first-time buyers in particular this is an issue, with the inability to put cash aside to for a deposit on a house putting home ownership even further outside their reach.
Indeed, research from Nottingham Building Society found that in the last year 35 per cent of would-be first-time buyers have seen house deals fall through because they had been unable to save a deposit large enough to secure a mortgage.
Worse still, while it seems like there are plenty of mortgage deals on the market for those with smaller sums to put down – MoneySuperMarket list 147 deals for first-time buyers with £10,000 to put towards a £200,000 home – securing the deal can be easier said than done, with lenders taking a tough stance when it comes to ‘riskier’ loans.
“Borrowers with small deposits have a wide choice of loans to pick from, but clearly many are struggling to buy the houses they want with so many potential deals falling through," said Ian Gibbons at Nottingham Mortgage Services.
"It is particularly worrying that borrowers with a 10 per cent deposit or more are struggling. They should be able to secure a mortgage and not have to miss out on house purchases simply because their deposit is too small."
While mortgage rates in general have come down in recent months, with Mortgage Trust launching products with rates of 1.95 per cent and 2.05 per cent and Yorkshire Building Society offering one that charges just 0.89 per cent, in reality these are only going to be available to those who have been able to build up some equity in an existing home rather than first-time buyers.
Indeed, research from Moneyfacts has found that while the average mortgage rate for someone borrowing 60 per cent of their home’s value has fallen from 4.2 per cent in April 2012 to 1.81 per cent today, for those borrowing 95 per cent the average rate has fallen from 5.62 per cent to 4.18 per cent.
However, with the difference between the average rates increasing from 1.42 percentage points to 2.37 percentage points over the period, it seems that those already on the housing ladder stand to benefit most.
“With improvements seen throughout the mortgage market of late, particularly for those with a five per cent deposit, many would assume that the loan-to-value [LTV] gap would have narrowed or even been bridged. However, it is disappointing to find that the reverse is true, with the gap bigger now than it was five years ago, Ms Nelson said.
“First-time buyers may feel that they are hit almost twice, with them not only having to struggle to gather enough cash for a deposit, but then also facing a significantly higher rate.”