First Time Buyer ‘rush’ is Set to End

by Mark Johnston

The recent decline in the home ownership rate in the UK is due to a combination of factors. The weak labour market and the uncertain economic outlook have certainly depressed the demand for homes, especially for first time buyers. Not forgetting the fact that unemployed rates, particularly amongst younger people, have drastically increased year on year and also real earnings have fallen sharply.

However, current data has shown that house prices in February 2012 have recorded their strongest monthly jump in nearly 2 years, with annual house price inflation picking up to 0.9%.

Analysts have suggested house prices may have been holding up due to the lack of homes being put on to the market, which in turn has helped to create ‘pent up’ buyer demand.

The Bank of England figures for February 2012 also show that mortgage approvals for house purchases had reached a 25 month high.

Robert Gardner, chief economist for Nationwide, said “it remains to be seen whether this trend will be sustained”.

Whilst these increases may indicate that the economy is not quite as weak as had been feared, the surge is more likely to be down to first time buyers rushing to buy property before the end of the stamp duty holiday.

This 2 year concession is due to end on March 24th and many lenders fear it could be then followed by a dip in the housing market activity.

The Council of Mortgage Lenders (CML), whose members are banks, building societies and other lenders, have always doubted the wisdom of re-introducing the stamp duty for first time buyers and therefore they state “we are now likely to see an unhelpful bunching of activity prior to the concessions expiry, followed by a dip”.

Richard Sexton, director of e.surv, stated “the stampede of first time buyers rushing to beat the stamp duty deadline bloated the January figures out of all recognition”.

House purchase approvals were at a 2 year high of 58,728 in January 2012. Although by the end of February loans for property purchases fell sharply to 46,499, which was a 21% drop on January’s figures.

At first glance the drop in approvals during February does look alarming, but many experts have stated it is merely a ‘return to normality after an abnormally frantic winter’.

Some analysts believe that the rush caused by first time buyers trying to avoid stamp duty payments had caused an ‘artificial’ spike in approvals and therefore should not be misconstrued as a sign the market is resuscitating in the long term.

Other experts feel that the current ‘bounce’ in sales and increased level of buyer interest may encourage more sellers who have been waiting to market their homes to ‘get off the fence’.

However, sellers should bear in mind that national figures are volatile at best and misleading at worst and they should therefore try not to over estimate what their property is currently worth.

Property is ultimately only worth what someone is willing to pay for it, not what an index says it is worth.

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