Share of Homes Bought by First-Time Buyers Expected to Drop

As the pandemic causes major banks to discontinue their low-deposit mortgage products, the share of homes bought by first-time buyers in the UK is expected to drop.

Forecasts by property website Zoopla reveal that first-time buyers make up around 33.9% of home purchases in the UK this year, down from 34.9% in 2019. The drop comes despite a spike in demand earlier in the year.

If the predictions are correct, it will be the first drop in house purchases by first-time buyers for five years.

According to the report, the ability of first-time buyers to purchase homes has been hampered by the economic fallout of the pandemic, which has caused the availability of high loan-to-value mortgages to tumble.

90%-plus mortgages accounted for about twenty percent of all home loans in the UK last year. However, since the lockdown, the fear of falling house prices and arrears has led many major mortgage lenders to turn away from 90%-plus lending.

A handful of lenders, such as HSBC, have been left to shoulder the bulk of the demand.

HSBC announced earlier this month that it was ‘temporarily reserving’ mortgages worth more than 85% of the value of a home to those who were switching interest rates. They said the change was being made in order to process the backlog of low-deposit mortgage applications.

Those who already own a home and are looking for a new property are in a better position than first-time buyers. At around 35%, Zoopla estimates that existing homeowners will make up a larger percentage of home purchases than first-time buyers for the whole of this year.

It would be the first time in three years that existing homeowners account for the largest percentage of total home sales.

Existing homeowners may continue to outpurchase first-time buyers into 2021, with those already owning a home expecting to account for 35.9% of new home sales, with first-time buyers only making up 32.2%.

Richard Donnell, Zoopla’s research and insight director, said: “A change in the mix of buyers is supporting market conditions, with sustained demand from equity-rich existing owners seeking more space and a change in location.

“In contrast, first-time buyer demand is weakening. FTBs have been a driving force of housing sales over the last decade. They remain a key buyer group, but lower availability of higher loan-to-value mortgages and increased movement by existing homeowners means a shift in the mix of home buyers into 2021.”