First-time buyers have recovered in 2024 as positive developments, including successive declines in bank base rates, have increased their affordability potential.
While the latest analysis from the Yorkshire Building Society supports this view, the government’s budget changes to stamp duty rules could potentially lead to a rise in completions in the first quarter of the year, according to YBS group economist Max Shepherd , as first-time buyers and movers rush to try and secure their homes before the stamp duty change increases the cost of doing so on April 1.
Once the change takes effect, it has the potential to deter existing homeowners from selling, resulting in a double whammy for first-time buyers by inflating home prices further beyond their reach.
Shepherd said: “While the trend is undoubtedly positive, the stamp duty change announced in the October Budget and ongoing geopolitical headwinds pose further risks to monitor. The reduction in the threshold above which stamp duty land tax is paid to £300,000 means that anyone buying a £500,000 house would pay an extra £10,000, and £25,000 if their property is worth more than £500,000. Previously, properties worth up to £425,000 were exempt.
“While buyers in regions such as the North are unlikely to be affected by the change, buyers there could fall into this trap due to higher house prices in the South.”
Based on the latest available figures to the end of October from the UK’s financial trade body, YBS predicts that there will have been 330,000 mortgage transactions for first-time buyers by 2024 – an increase of 13.8% on the 290,000 in 2023 – the lowest number since 2013 (260,000).
This 2023 slump was due to the pressures of the cost of living crisis, higher interest rates and rising house prices, all of which kept potential buyers from dipping their toes back into the market.
Annual FTB transactions
For context, the highest number of annual transactions by first-time buyers in the past two decades occurred in 2021, at 400,000 – an anomaly fueled by unique factors such as exceptional government support and changes in work habits following the COVID-19 crisis, and ultra-low lending. costs.
Total home purchasing activity also increased by 10% in 2024, and YBS expects to see 1.1 million transactions this year, up from one million in 2023. First-time buyers continued to drive the majority of purchasing activity, at 54%. , comparable to 2023.
Shepherd added: “The base rate cuts in 2024 are factors that have contributed to increased confidence among new buyers, although caution should be exercised in hoping they will see significantly lower mortgage rates in 2025. The market expects three base interest rates. cuts this year, which have already been priced in by the market, so I don’t think we’ll see average interest rates fall much below 4% and therefore anyone considering buying should probably base their planning around that.
“Economic factors such as real income growth, the introduction of the new minimum wage and the fact that unemployment is still low are contributing to the increase in confidence, which is good to see, but there are many variables at play.”