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Stamp duty rush causes two-year high for first-time buyers
The number of loans to first-time buyers hit a two-year high in December 2009, driven by a rush to buy properties in the £125,000 - £175,000 bracket before the year-end stamp duty concession expired, according to figures released today by the Council of Mortgage Lenders.
The CML has also published new analysis showing how affordability, especially for first-time buyers, is complicated by the effect of low interest rates when capital repayments are taken into account.
December saw 24,900 loans to first-time buyers, the highest number since November 2007. At £2.9 billion, first-time buyer loans rose 26% from November both by volume and value.
55% of house purchase loans were on properties costing under £175,000 and therefore exempt from stamp duty, up from 51% in November. 10,300 first-time buyers and 11,200 home movers bought a property of between £125,000 and £175,000 in December, up 63% from 6,300 and 49% from 7,500 respectively from November. This clearly indicates a rush to complete purchases before January, when stamp duty would have added an additional 1% of the purchase price onto the transaction costs.
The total number of house purchase loans for the year was fractionally up from 2008 but just over half of the pre credit crunch level in 2007.First-time buyer loans accounted were , up slightly from 2008 but down 44% in 2007.
A new CML research article released today examines the different measures of mortgage and housing affordability. In particular, it highlights the fact that low interest rates, while clearly helpful to affordability, do mean that repayment mortgages experience a higher level of capital repayment which subdues the beneficial effect.
The article compares and contrasts the conventional measures of affordability and assesses the limitations of each. It reflects on the ability of first-time buyers to get onto the housing ladder and how to assess affordability in this low interest rate environment
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Bob Pannell, author of the research, said: “With 90% of loans advanced in December being repayment mortgages, it would seem appropriate to take capital payments into account when assessing affordability.
“Typical capital and interest payments for a recent first-time buyer would represent about 21% of pre-tax income. This is considerably more than the 14-15% that mortgage interest costs alone would be, and demonstrates why using initial mortgage interest costs to assess affordability risks giving an overly flattering picture.”
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