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First-time buyers are coming back with a vengeance

David J Alexander

There has been real concern in recent years over affordability issues for first time buyers (FTBs) in Scotland. The increasing house prices, coupled with higher interest rates has led to some questioning whether FTBs are as able to afford to buy a home now compared to recent times.

However, the data shows a distinctly positive trend. Q1 2024 (the latest period for which there is official data) figures showed new mortgage lending to FTBs had an annual rate of increase of 9.6 per cent, which is considerably higher than for existing homeowners, which only rose by 2.2 per cent. The mean loan-to-value (LTV) ratio on mortgages advanced to first time buyers increased to 80.9 per cent at the start of this year, almost equalling the pre-pandemic levels (just 0.6 per cent lower), unlike the homeowner market which remains 3.5 per cent lower than before the pandemic.

Scotland had the UK’s third lowest level of deposit and, while average prices in Scotland for FTBs have increased by 4.7 per cent over the year to July 2024, from £152,983 to £160,213 – this was at a time when average income rose by 6.0 per cent.

Of course, there are enormous geographic variations in average house prices, so some places are substantially more affordable than others. The average FTBs house price in Edinburgh only rose by 4.5 per cent but the total at £266,481 was over £100,000 higher than the Scottish average. In Dundee the position is completely reversed, with a rise of only 0.9 per cent in average house price for FTBs and in Aberdeen a fall of £137 over the year. Glasgow’s average price for FTBs is almost exactly in line with the Scottish average at £165,769.

So, for public sector workers and others with national pay deals the lesson is fairly obvious. FTBs with these kinds of jobs getting a 6 per cent average pay rise will find owning a home considerably easier in Dundee and Aberdeen than in Glasgow or Edinburgh.

Therefore, far from being a bleak picture, the FTB seems to be returning to the home owning market with a vengeance. This is good news for everyone because the housing market requires the upward pressure of new buyers into the market to push all the other prices higher.

It is questionable, therefore, whether there needs to be any more financial support for FTBs given how positively this group seem to be doing despite higher interest rates, continuing economic uncertainty, and rising utility bills. Relative employment certainty, the continued strong desire to be homeowners, and pricing which remains affordable for a substantial number of FTBs is keeping the housing market going.

The most important factor is affordability, and again the data indicates that most FTBs are finding their mortgages manageable. At the start of the year the FTB average house price to income ratio had fallen to 2.88, having been at 3.2 in the middle of 2022. A ratio below three is generally accepted as reasonably affordable for most homebuyers and is an indication of a steadily rising market which can be sustained.

It is essential that first time buyers remain able to get a foothold in the market to ensure future stability and growth in the housing sector in Scotland.

 
 

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