New CML data shows nearly half of first-time buyers didn't use the 'bank of mum and dad'
Published: 5 March 2015 | Author: Bernard Clarke
- Last year saw strong growth in the number of first-time buyers getting into the market. More than 300,000 people bought their first home – the highest total since 2007.
- There was also a sharp increase in the ability of first-time buyers to access the market without family help for their deposit. This continues a recent and welcome trend.
- But our analysis is blurred by the significant numbers of borrowers using the various Help to Buy schemes. These assisted more than 50,000 first-time buyers into a home in 2014.
- Another significant factor in the increasing number of first-time buyers able to enter the market without help is the improvement in the availability of loans at higher loan-to-value (LTV) ratios.
- However, the improving trend in the number of unassisted first-time buyers continues to depend on wider market conditions. With increasing affordability pressures and the introduction of a new regulatory landscape, the prospects for further improvements in the ability of first-time buyers to enter the market may be more limited, unless there are significant improvements in household finances or further extensions of government support.
First-time buyer numbers
Our latest mortgage lending figures completed the full picture of mortgage lending in 2014, and confirmed that lending to first-time buyers showed significant growth during the year. More than 300,000 buyers purchased their first home during the year – the largest number since 2007.
First-time buyers also continued to account for an increasing proportion of the buying market overall and accounted for 46% of purchases in 2014.
The two Help to Buy schemes have played a part in this growth and have transformed the ability of first-time buyers to get on the housing ladder – together helping more than 50,000 make the transition to home-ownership. That is significantly more than previous schemes such and FirstBuy and NewBuy.
What has happened to the number of first-time buyers getting help?
Our analysis of first-time buyer assistance identifies whether a borrower is likely to have been helped in raising the deposit for their home. In our earlier analysis, we have judged whether or not buyers are likely to have been "assisted" by looking at their incomes and calculating whether they are likely to have been able to save their deposits from their own means.
If it looks unrealistic that they would have been able to save the deposit from their own income, we have concluded that they were likely to have been assisted. This help is likely to have come from parents or grandparents – the so-called "bank of mum and dad".
The ability of first-time buyers to access the market without help has evolved over the time that we have been monitoring this. Between 2005 until 2008, an increasing proportion of first-time buyers needed help with their deposits, as house prices increased and affordability pressures tightened. During 2008, we saw a particularly pronounced fall in the number of first-time buyers purchasing without assistance, as LTV requirements became more restrictive during the financial crisis.
In 2009, the proportion of first-time buyers able to access the market without financial help started to recover (see Chart 1). We saw this in our previous analysis of this topic, and this reflected a gradual improvement in the availability of mortgage finance – particularly at higher LTV ratios.
Chart 1: Number and proportion of first-time buyers purchasing without assistance
When we last updated this analysis in 2011, we estimated that around 34% of first-time buyers got into the market without help in raising their deposit. We now update this analysis to the end of 2014, and this shows an increase in the proportion of first-time buyers likely to have bought without family assistance. There was a striking increase in 2014, when almost half (48%) of first-time buyers were likely to have bought without help.
Looking across the country, there has been an increase in the number of first-time buyers purchasing without assistance in all regions of the UK, although the increase is less pronounced in London (see Chart 2). Perhaps not surprisingly, a higher proportion of first-time buyers in London and the South East (where affordability pressures tend to be tighter) appear to have received help with their deposit.
Chart 2: Proportion of first-time buyers purchasing without assistance, by region
The improvement in the ability of first-time buyers to buy without family help initially reflects the easing in LTV requirements that we started to see in 2012 and 2013. Last year, there was a further boost as the Help to Buy mortgage guarantee scheme helped make 95% LTV products more widely available.
We have had to take into account the effect of Help to Buy in estimating the numbers of borrowers buying with and without financial “help.”
For the purposes of our analysis, we regard those using the Help to Buy equity loan scheme as receiving “help,” due to the hefty (typically 20%) equity loan boosting their deposit. This produces a similar effect to the “bank of mum and dad,” but with the funds coming from a different source.
The other part of Help to Buy, the mortgage guarantee scheme, does not involve an injection of deposit funds in the same way. So, as far as our analysis is concerned, these first-time buyers are classified “unassisted.” Although they are getting help from a government scheme, they pay their own deposit and meet their monthly mortgage payments – albeit on better terms than might otherwise be available without the government guarantee.
Looking at the characteristics of the different groups of first-time buyers in Table 1 bears out this view. The characteristics of first-time buyers purchasing through the equity loan scheme appear to be similar to those we identify as “assisted,” while Help to Buy mortgage guarantee borrowers look more akin to those we classify as “unassisted.”
Table 1: Characteristics of first-time buyers in 2014
Factoring in the impact of both Help to Buy schemes using this stylised approach, we can see that there has still been an underlying improvement in the ability of first-time buyers to access the market without assistance since 2011.
Our estimate is that 38% of first-time buyers became home-owners without assistance in 2014 – whether from parents or either of the Help to Buy schemes – up from 34% in 2011 (see Chart 3).
Chart 3: Assisted and unassisted first-time buyers: factoring in the impact of Help to Buy
With the emergence and growth of new schemes that help borrowers into home-ownership, there has been a fundamental change in the landscape since we developed our framework for estimating the number of first-time buyers able to become owner-occupiers under their own steam. The various strands of assistance now make it harder to draw concrete insights from this analysis, and the picture may become even more blurred if new initiatives such as the starter homes scheme do come on stream.
Overall, the improving trend in the numbers of first-time buyers getting into the market without help will continue to depend on wider market conditions. Looking at first-time buyer activity during 2014, we can see that growth in lending to this group was much stronger during the first half of the year. In the second half of 2014, it was running much closer to the levels we saw for the comparable period in the preceding year. (see Chart 4).
Chart 4: Lending to first-time buyers in 2013 and 2014
Affordability pressures remain elevated and, with the house price increases we saw in 2014, they are likely to have become a little more stretched once again. Some first-time buyers will also have found affordability more difficult under the new regulatory landscape (as a result of the mortgage market review and the restriction imposed by the Financial Policy Committee on lending at higher loan-to-income ratios). And the scheduled closing of the Help to Buy mortgage guarantee scheme in 2016 will take away another form of help.
All this suggests that, despite the real income growth expected in the short term, the prospects for growth in lending to first-time buyers may be more limited in the period ahead without significant improvements in household finances or the further extension of government support.