Figures out yesterday showed that the cost of buying a home in London rose on average £28,000 last year. That’s a yearly rise equivalent to the average London income. No wonder renters feel that the dream of home ownership is out of reach.
The Land Registry data also indicates another trend: younger first time buyers.
Across England and Wales the number of properties sold for under £200,000 fell by 7% over the last year, while the number of properties sold for over £1m increased by 14%.
In London, where prices are rising fastest, there was a 25% increase in homes sold for over £1m while the number sold for under £300,000 fell by 9%.
Does this mean that there has been a huge decline in first time buyers?
No. According to mortgage lenders, the number of homes bought by first time buyers has been increasing in recent months. Even as homes become less affordable for those on ordinary incomes, the number of first time buyers is increasing.
This is a conundrum. The number of first time buyers is rising (from the very low levels we saw during the recession) but the number of properties sold at traditional first time buyer prices is falling rapidly. How can this be?
The answer, I believe, is that we are seeing a shift in the sort of people who are becoming first time buyers. The Council of Mortgage Lenders (CML) have collated data showing that it is increasingly likely, especially in London, that first time buyers will have massive parental help. So it seems that the growth in first time buyers is coming from people with help from wealthy parents, who are buying more expensive properties than ‘traditional’ first time buyers. Other areas of growth, especially in the capital, are from foreign investors and buy to let landlords.
This effect might also explain an anomaly: despite the widespread belief that the average age of a first time buyer is rising into the late 30s, in actual fact it’s still steady at 29.
As CML demonstrate, the key difference is between unassisted and assisted first time buyers. Unsurprisingly, ‘real’ first timers who saved up themselves are older than those with big deposits provided for them. But although the savers are getting older, they are also getting fewer, which is presumably why the average age of all first time buyers hasn’t changed.
If prices continue to outstrip wages and the ability to save, they will become rarer still. At some point, the average age of a first time buyer may start to be dragged down by this effect, even as house prices rise.
What all this means is that we may reach the bizarre situation where house prices become less obtainable, but first time buyers start getting younger on average. If any drop in the average age of a first time buyer does happen, it’s bound to lead to claims that the housing crisis is finally over.
Of course, what’s really happening is that ordinary families on middle incomes are being squeezed out – leaving just the lucky few who can depend on the Bank of Mum and Dad.