Will lower stress tests for mortgages fuel a first-time buyer boom?
Easier access to mortgages might replace the stamp duty holiday as fuel for the starter homes market, with prices forecast to soar if affordability improves.
The average price paid by a first-time buyer grew by 2.1 per cent in the first quarter and by 7.1 per cent year on year, according to government data.
While the first-quarter surge was fuelled by the end of the stamp duty holiday, analysts expect an improvement in affordability to fuel demand and keep price growth strong throughout the year.
Stress-tests, which look at the effect of future interest rate rises on mortgage affordability, have become more flexible as the Bank of England lowers rates.
Buyers are “routinely” being offered loans up to 20 per cent larger than this time last year, according to Peter Stimson, director of mortgages at MPowered.
“For first-time buyers, who typically borrow close to the maximum they can, the ability to borrow more, and pay more, for a home is pushing up prices sharply,” he added.
“Lower stress tests have replaced the stamp duty deadline as the fuel for a first-time buyer boom.”
Property giant Savills has offered a slightly longer-term approach to the issue, arguing that relaxed guidance will “not be immediate”.
But in the medium to long term, the market will “feel the knock-on impact of a widening pool of buyers”, Lucian Cook, head of residential research at Savills, said.
Savills has predicted house prices to rise by five to 7.5 per cent on top of existing five-year forecasts as a result of more flexible stress tests, depending on how much new housing stock is delivered to meet the higher demand.
The government push to build affordable homes should also relieve pressure on the wider housing market and slow house price growth for starter homes.
A boost in demand for privately-built, market-price houses will also encourage the FTSE housebuilders to build more homes as they become more confident their sites will sell.
However, Cook warned that even this boost in demand is “unlikely to be enough to allow the government to hit its housebuilding targets.”
“There will be a strong interplay between the extent to which house prices and first-time buyer transactions increase.
“The more increased borrowing capacity impacts prices, the less impact there will be on transactions,” he said.