London property forecast: first-time buyers to be 'most dominant group' in housing market despite Help to Buy closure

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Anna White13 November 2019

London first-time buyers, the most dominant group in this muted housing market, will continue to drive sales over the next five years, despite the gap between the average price of a home in the capital and the rest of the UK being at its widest on record, at 2.3 times more.

The number of sales per year to these buyers is forecast to rise five per cent by 2025, from 43,000 to 47,000, with wages set to grow 15 per cent.

By 2025 first-timers will account for nearly half of all London sales, Savills predicts.

This is despite the possible end of Help to Buy, the Government’s shared equity loan scheme, which has been a lifeline for first-time buyers since its introduction in 2013.

How Help to Buy works in London

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In comparison, completions made by homeowners moving house with a mortgage will creep up two per cent from 26,000 next year to 28,000 in five years time, Savills’ study reveals.

The number of purchases made by landlords is expected to fall.

£148,512: the average deposit required for a first home in London
Shutterstock / ZGPhotography

“The number of first-time buyers in London has increased since the middle of 2018 as price falls ease pressure on affordability and more households take advantage of Help to Buy,” says Savills’ Lawrence Bowles.

“Transactions will take a brief hit in early 2023 as Help to Buy meets its end. However, we expect easing housing affordability to make up that shortfall by the end of the year and continued growth in first-time buyer numbers through 2024.”

But the deposit will remain the biggest barrier for first-time buyers. The average household income of a first timer is £83,000, with a mortgage of £298,568, so the deposit required has hit £148,512.

This compares to a deposit of £51,779 across the UK.

Values rose too high, too fast after the 2008 crash, with sluggish wage growth, taking first-time buyer deposits to astronomical heights.

“Despite house price falls and stagnation, the long-term problem of the equity gap for first-time buyers has not gone away,” says Knight Frank’s Patrick Gower.

Will anything replace Help to Buy?

He believes it’s in the best interests of the Government, developers and buyers to replace the outgoing Help to Buy scheme when it ends in 2023.

The uptake of this initiative has trebled in popularity over the last three years to 6,115 loans in the first quarter of this year.

A developer told Homes & Property that the Government has tasked the House Builders Federation with identifying an alternative.

A “top-up mortgages” option is being discussed, where the private sector would take on the role of Help to Buy lender. “However, you would have to assume this would be more expensive,” the source says.

A scheme called New Buy was ditched in 2013 but remains a favourite among the biggest housebuilders.

Developers put money into an indemnity fund for the banks, encouraging them to offer higher loan-to-value mortgages of 95 per cent.

If a borrower misses mortgage payments, then the banks could dip into the fund. “It was working pretty well because of low arrears [meaning very few people were defaulting],” explains the source.

There were hints reported following the Conservative Party Conference this autumn that the Prime Minister, should he win the December general election, may extend stamp duty relief from the first £300,000 on a first-time buyer home to £500,000.