Is the housing market really FTB friendly?

Which is, house prices are pretty much bumping along the bottom, albeit with the usual regional and local caveats – the UK is nothing if not diverse when it comes to individual markets.

However, does this truly tell the whole story?

If you’re a first-time buyer looking at such data, you might believe that there is no time better than now to get on the ladder. After all, those prices appear pretty stable, indeed they appear to be dropping in some areas, while – if the UK data is to be believed – in others house prices are ticking up only fractionally on a yearly basis.

Add in the apparent situation within the mortgage market – that is the sector making headlines with below-1% product rates, and an understanding that a a highly competitive lending battle is currently being waged, particularly for ‘vanilla’ borrowers, and again you might jump to the conclusion that there is no better time than now to secure a reasonably-priced property via a cheap mortgage rate.

Is this the reality though?

Each quarter we run a research project called the AmTrust LTV Tracker which looks at a number of different first-time buyer-related areas. For instance, we review the average house price being paid by first-timers, the amount of deposit they are putting down, the average rates they might pay depending on whether they can put either a 5% or 25% deposit down, and what that means in terms of both average monthly and annual mortgage cost.

Interestingly, we also review the number of products actually available to first-timers depending on whether they’re a high or lower LTV borrower. The differences between product choice is often staggering - let’s just say that, depending on what term and type of product they want, there are often six times as many options available to those of a lower LTV persuasion.

In other words, and this is understandable given the risk-averse nature of lots of lending, lenders want lower LTV borrowers and offer many more products to this cohort at much cheaper rates. If you’re only putting down a 5% deposit, get ready for far less choice and to be paying significantly more – often close to 50% more each month than your 25% deposit counterpart.

But, back to house prices and the first-time buyer reality. In our quarterly index published in April, we noted a real step change from previous iterations, and it didn’t follow the house price ‘plateau’ story that many were peddling. Indeed, what we found was that there’d be a noticeable increase in the cost of property being bought by first-timers. This was such a rise, that any potential benefit they might have had from cheaper rates, was being totally wiped out and then some.

In other words, the price of property paid by first-timers was much higher than the UK average house price data, which meant larger deposits were required and the cost of mortgages, both on a monthly and annual basis had also increased significantly.

Recent research from housing developer, Project Etopia just this month, appears to back up our data. It says that the cost of entry level housing has increased by more than three times as fast as the wider market in certain areas of the country. Take, for instance, affordable homes in Uttlesford, Essence which increased by 63.3% in five years, or Three Rivers in Hertfordshire, up 62.5% over the same period.

It's these entry-level, supposedly affordable homes, which are meant to be the mainstay of the first-time buyer market, and it completely chimes with our LTV Tracker which highlighted back in April, that this demographic were paying noticeable more in order to get on the ladder. Last month, the National Audit Office pointed out that of 200k starter homes pledged by the Government in 2014, none had been built.

Perhaps it’s therefore no surprise that those which are being built now come at a significant premium – you don’t need to be an economist to work out that particularly supply and demand result.

So, while the overall picture might look a friendly one for first-timers in terms of house price, mortgage choice/availability and rate, the actual reality appears to be rather different. The housing supply conundrum has still not been solved, indeed we look very far away from this; in the meantime, those houses that are being built and are purportedly ‘perfect’ for first-timers are going to come at a significantly increased cost, and regardless of how much deposit you have, the mortgage ain’t coming cheap either.