First-time buyers are emerging back into the market after recording a fall in share of sales from their 2018 high, in the wake of 2020’s pandemic-led credit squeeze. As lenders withdrew 90%+ loan-to-value mortgages attempting to de-risk at the onset of the recession, many first-time buyers were forced to put their plans to buy on hold.

Annual UK house price inflation +4.3%

House prices climbed by 0.3% in January, taking the annual rate of growth to 4.3%, matching the highest rate of growth since April 2017.

Price growth at a country and regional level ranges from 2.8% in London to 5.5% in the North West of England and 5.6% in Wales. Meanwhile Manchester and Liverpool are the cities registering the strongest price rises, with annual house price growth of 6.3% and 6.8% respectively.

Demand for housing still ahead of last year

Buyer demand has remained strong through the first six weeks of 2021. It is up 12.4% compared to the same point last year - when demand rebounded after the General Election result in December 2019.

The flow of new buyers comes despite the imminent ending of the stamp duty holiday. Robust levels of demand signals the continuation of a trend that we have highlighted since the summer last year.

While stamp duty has prompted higher levels of activity, there is still a cohort of buyers and movers who are looking for a new home after a reassessment of how and where they are living after repeated lockdowns, and the rise of working from home. The data points towards a ‘search for space’ among some buyers.

As demand remains high, the number of homes being listed for sale is not keeping pace, putting sustained upward pressure on pricing. There are two reasons why new supply is currently constrained.

As we highlighted at the start of the year, some sellers are pressing pause on inviting potential buyers into their homes for viewings during the current lockdown. We expect the flow of new supply to speed up once lockdowns ease.

The data also signals a second factor emerging; increased demand from first-time buyers who have no property to sell when they move.

Regional imbalances

The mismatch between supply and demand is still evident in most regions across the country, as shown in the chart below. Demand levels in the North East are running more than 40% higher so far this year than over the same period last year, while new supply has shrunk.

The exception is London, where demand levels have fallen year-on-year. However, there is a caveat here. Demand levels in London may be down 17% on an annual basis, but this is compared to a period in 2020 when there was a major surge in activity after the election result in December 2019 with activity levels rising off a relatively lower base.

If we compare current London demand figures to previous years, they are still well ahead of the average. Supply in London is also not as constrained as other markets, reflecting a higher proportion of landlords selling their property.

Early evidence of increased first-time buyer activity

Last year, amid a squeeze on mortgage availability for those with smaller deposits, we saw the share of first-time buyers fall to the lowest level in four years.

Those buying with a mortgage made up the largest share of activity, while there was a sharp rise in those buying in a cash transaction - signalling rising activity among homeowners using equity to make their next move.

As we move into 2021 however, there are signs of increasing activity among first-time buyers. Our data shows that buyer demand from first-time buyers across the UK is up 5% in the first six weeks of the year compared to Q4.

This chimes with an increased array of mortgages available for those with only a 5% or 10% deposit. While mortgage lending levels in this sector are not nearly back to where they were in early 2020, the number of lenders offering such deals has risen since Q4 last year.

We have also registered an increase in the number of sales agreed between £100,000 and £250,000, which climbed by 18% in the first seven weeks of the year.

Buyers of lower-value properties tend to be more reliant on the availability of mortgage finance, especially at higher loan-to-values, and the return of activity in these price bands suggests a return to the market of purchasers who struggled to get finance in 2020.

This activity among first-time buyers will also be sustained beyond March 31st as most first-time buyers will not be affected by the end of the stamp duty holiday.

Typically, some 78% of first-time buyers purchasing a property worth up to £500,000 pay no stamp duty. Yet as more first-time buyers enter the market, it is likely to further exacerbate the imbalance between supply and demand in many parts of the market, as first-time buyers do not have a home to list for sale.