Was the stamp duty change a red herring?

Was the stamp duty change a red herring?

We may not have any 2018 data to currently work with, but judging by the latest UK Finance information we do have, the lot of the first-time buyer seems to be improving, albeit rather slowly.

While the data covers November last year – the month of the Budget and the cut to stamp duty for first-timers – it’s obviously not going to contain any real clues about the impact (or otherwise) the stamp duty changes will have on the sector. All those who completed mortgages during this month would have already been in the system for what is likely to have been a number of months and therefore the figures can’t be attributed to any ‘stamp duty incentive’.

However, in a very general sense, the statistics do appear to reveal growth in the number of first-time buyers, on both the previous month, and in terms of a year-on-year improvement. If you’ve yet to see the data, then the number of first-time buyer loans hit 34,800 in November – up 15.2% on November 2016 – while the value of those loans, £5.6bn, was 16.7% up on the same timescale.

Positive news and perhaps an indicator of the more benign environment for first-time buyers that has been developed. Despite that positivity, there are clearly some key issues that potential first-timers continue to confront and these (on the whole) don’t appear to be getting any better, even with considerable Government intervention.

For instance, the average first-time buyer loan size is up 2.9% year-on-year to £138k; in terms of income multiples this too is up to 3.64 times income whereas a year earlier it was 3.5; this means that mortgage repayments as a percentage of overall monthly income is still high – 17.3 – although a little down on the 17.6 it was the year before. In terms of LTV, first-time buyers’ average loans are set at 84.6%, which means they are putting down a significant 15%-plus deposit in order to get on the ladder. Finally, the average age of a first-timer buyer is 30 and their average income is just over £40k.

Now, of course, the averages listed above do not tell the whole story, and while many first-timers are finding 15%-plus deposits, others might be able to get on the ladder with 10%, or an even less likely 5%. If we take the average loan figure of £138k, and the average LTV of 84.6%, that give us an average price of just over £163k. If that is the average price of a property bought by a first-time buyer then it means a 5% deposit requires £8.15k, 10% needs £16.3k, and 15% requires £24.45k – all those are considerable amounts of money to save and it is perhaps little wonder that some are already suggesting the stamp duty cut is not going to suddenly allow hundreds of thousands of potential first-time buyers to go ahead and make that purchase.

Indeed, look at the overall saving that cutting stamp duty provides for ‘average’ first-time buyers and we’re barely looking at a thousand pounds. Of course, it is a cost that has now been jettisoned and will not need to be saved for, or added to the mortgage, but it still means first-timers are having to save significant sums of money to get those elusive deposits.

Add in the affordability conundrum, in terms of new buyers meeting the heightened calculations lenders have to use, the continued increase in house prices, the housing market still playing catch-up in terms of building new homes, and you can see why a number of commentators believe the change to stamp duty is something of a red herring. Might the Government actually have provided an answer to a question that didn’t really exist?

Let’s also not forget that many of those who want to purchase are currently shelling out large sums of money each month to pay for their rent and living/travel costs. One might argue that unless you are living at home with parents and not paying rent, or relying on the Bank of Mum and Dad to help you out, or about to come into a serious windfall, then even with an average income of £40k, the outgoings required are going to make it very difficult to save that deposit, and cross lenders’ affordability threshold.

It’s therefore not surprising that we’ve recently seen the launch of a platform designed to link rental payments to an individual’s credit report, in order that lenders might well take those regular, monthly payments into account when deciding whether a potential mortgage borrower is indeed credit-worthy.

The fact that many lenders don’t do this at the moment appears very archaic and one would hope that progress can be made in this area – as advisers will know, many potential purchasers currently pay more in rent than they would do for their mortgage, and yet are still turned down. This hardly seems fair and one would hope many more adopt a ‘common sense’ outlook which is likely to be of greater benefit to borrowers than any cut in stamp duty could ever deliver.

Pad Bamford is business development director at AmTrust Mortgage & Credit