First-time buyers keep housing market solid 

First-time buyers
First-time buyers are using low interest rates to get onto the housing ladder Credit: photolibrary.com

Demand from new buyers is driving the housing market as landlords and home-owners hold off making any big decisions, according to banks and building societies.

Borrowers took out mortgages totalling £18.9bn in January, up from £18.6bn a year ago, driven by demand from first-time buyers, in the latest indication the housing market is getting back on track after the tax changes in April and the post-referendum slowdown.

The figure is down from £20bn in December, but January is typically a weak month for house purchases, according to figures from the Council of Mortgage Lenders (CML).

The number of first-time buyers rose strongly last year, with 339,000 joining the housing ladder, up 8pc compared with 2015, and the CML believes this trend will continue.

Cheaper loans are also encouraging existing homeowners save money by getting a new mortgage with a lower interest rate, the CML said.

“It looks likely that first-time buyers and remortgage activity continue to be the drivers of lending,” said CML economist Mohammad Jamei.

“This shouldn’t come as much of a surprise as most government schemes have been aimed at helping boost first-time buyer numbers.”

Last year 360,000 people moved homes, meaning the number has stayed roughly flat for three years.

“This continues to hold back the market, as very few homes are being put up for sale,” said Mr Jamei.

“CML regional data shows in some areas, such as greater London, the number of home movers fell to their lowest levels for 25 years, highlighting the acuteness of this issue. The imbalance is likely to continue underpinning house price values.”

Fewer investors are buying property to rent out as tax changes make the sector less attractive
Fewer investors are buying property to rent out as tax changes make the sector less attractive

At the same time, stamp duty changes last year means fewer landlords are buying properties. Sales spiked in March 2016 before the introduction of a higher rate of stamp duty on landlords and second home owners, but that part of the market has been subdued ever since.

New rules from this April could hit demand even harder as they will limit landlords’ ability to deduct mortgage interest payments from rental profits for the purposes of taxation.

Howard Archer, chief UK and European economist at IHS Markit, expects house prices to rise by 3pc this year.

“Housing market activity is likely to be limited in 2017 by softer consumer confidence and reduced willingness to engage in major transactions,” said.

“Prices are also likely to be under pressure from stretched house prices to earnings ratios and tight checking of prospective mortgage borrowers by lenders."

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