First time buyers pay the price in rush to beat home stamp duty

First time buyers have been hit by a rise in borrowing rates. Picture: TSPL
First time buyers have been hit by a rise in borrowing rates. Picture: TSPL
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AN INCREASE in some lenders’ borrowing rates has pushed up the amount of income first time buyers need to secure a property – for the first time in a year.

New figures from the Council of Mortgage Lenders show the proportion of income first-time buyers spent on mortgage interest payments rose from 12.1 per cent in January to 12.5 per cent in February.

Last month, major lenders Royal Bank of Scotland and Halifax bumped up their mortgage rates slightly, citing increased costs of borrowing for banks.

However, mortgages for would-be first-time purchasers are still far more affordable than they were pre-recession in 2008, when an average of 19.6 per cent of the first time buyer’s income went towards mortgage interest payments.

Lending to both first-time buyers and home movers grew in February – with first-time buyers taking the bigger increase.

Home movers took out a total of 22,500 loans worth £3.7 billion in February, a 3 per cent increase in value from January and 19 per cent increase in value from February last year.

But the value of loans to first time buyers – who are thought to have flocked to get on the housing ladder before the end of the stamp duty release, which finished at the end of March – rose by 6 per cent compared to January and 21 per cent compared to the same month last year.

“It is encouraging to see the continuing year-on-year improvement in house purchase lending,” said CML director general Paul Smee.

“However, it is not yet clear whether the end of the stamp duty concession will lead to a falling off in first-time buyer numbers.”

Just over half of first-time buyers bought properties priced between £125,000 and £250,000 in February, up from 49 per cent in January. February was the last full month of the stamp duty concession.

Mark Hollands, director of independent UK-wide mortgage broker, London Money, said: “February’s rise in first time buyers is almost certainly due to the stamp duty holiday and will almost certainly fizzle out.

“While homes are marginally more affordable for some first time buyers, for the majority of would-be homeowners property ownership remains a pipe dream.”

Howard Archer, chief UK economist at IHS Global Insight, said: “Despite the rise in mortgage advances reported by the CML we continue to expect house prices to trend modestly lower over the coming months.

“Lending was clearly lifted early in 2012 by first-time buyers rushing to complete before the stamp duty concession ended.”