The pandemic is fuelling a reversal of fortunes for first-time buyers and homeowners, according to our latest House Price Index.
First-time buyers are set to be overtaken by homeowners as the driving force of housing sales next year.
Despite a jump in first-time buyer appetite when the English housing market re-opened in mid-May, demand has tapered off over the last two months, according to our latest House Price Index.
Although first-time buyer interest in stepping onto the housing ladder remains well above 2019 levels, it has now settled back to pre-pandemic levels – and is set to soften further into 2021.
Meanwhile, homeowners were slower to respond immediately after lockdown lifted, but their appetite to move house is 37% higher than pre-pandemic levels and a whopping 53% higher than this time last year.
This reversal will take time to feed through in the housing market – but the gap between mortgaged homeowner and first-time buyer activity is likely to widen further into 2021.
Why is first-time buyer appetite starting to lag?
First-time buyers have been the driving force of the housing market over the last decade, bolstered by the government’s Help to Buy scheme and greater availability of high loan-to-value (LTV) mortgages.
And in 2019, first-time buyers overtook mortgaged homeowners as the most dominant buyer in the housing market.
But restricted mortgage availability, tighter lending criteria and growing economic uncertainty as a result of the pandemic are taking their toll on first-time buyer appetite – and their ability to snap up a home.
Is it the same across the UK?
First-time buyer appetite in September has grown the least in London (1.8%), Yorkshire and the Humber (4.8%) and north west England (9.7%) when compared with the first three months of the year.
By comparison, homeowner interest in moving home has jumped 83.5% in Scotland, 66.2% in the east of England and 65.8% in the south east.
Going forward, it is the regions outside southern England where first-time buyer demand is set to be most impacted, reflecting aspiring homeowners' reliance on high loan-to-value mortgages, particularly at or above 90% LTV.
But London, where high loan-to-value loans are limited to buyers on high incomes or with large deposits, is not immune to changes in lending constraints.
And a greater proportion of first-time buyers in London may turn their attention to commuter areas to purchase their first home.
So why are more homeowners interested in moving?
Homeowners have accounted for an increasingly smaller share of housing sales in the last 10 years, as they stayed put and gradually paid off their mortgages.
But they’ve become more active in the housing market since restrictions lifted, fuelled by the search for more space and a once-in-a-lifetime re-evaluation of housing requirements.
With many homeowners having either no mortgage or a small loan, they also have an equity advantage over other buyers, in particular those stepping onto the housing ladder.
In fact, three quarters of homeowners are over 45 years old and more than half are mortgage-free, so they can potentially make the move as cash buyers.
Richard Donnell, research and insight director at Zoopla, said: “A change in the mix of buyers is supporting market conditions with sustained demand from equity-rich homeowners seeking more space and a change in location.
“In contrast, first-time buyer demand is weakening. First-time buyers have been a driving force of housing sales over the last decade.
"They remain a key buyer group but lower availability of higher loan-to-value mortgages and increased movement by existing homeowners means a shift in the mix of buyers into 2021.”
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