No sign of recent stamp duty changes boosting first-time buyers' confidence - 27/06/05

• Just over a third (35 per cent) of potential first-time buyers want to buy in the next year, but only 5 per cent are confident they'll be able to do so - the same as three months ago



• Three fifths (60 per cent) would consider shared ownership or a shared mortgage as a way of getting on to the property ladder



• If interest rates decrease this year, as many now think possible, 15 per cent of first-time buyers say that they'd be more likely to buy

Despite the recent increase in the zero rate stamp duty threshold, confidence among first-time buyers is not improving, according to Abbey, the UK's second largest mortgage lender. Its latest quarterly first-time buyers' report1 reveals that, in the space of the last three months, the number of people who are confident about being able to buy their first home in the next year has remained at just 5 per cent. And a quarter (25 per cent) feel that if they don't get on to the property ladder soon, they'll never be able to do it.

According to Abbey's research, however, prospective homebuyers see shared ownership and shared mortgages with friends or family as potential solutions. Its figures reveal that one in three (29 per cent) would consider buying a shared ownership property through a housing association as way of getting on to the property ladder, and 31 per cent would contemplate buying with family or friends. A quarter (27 per cent) would think about buying a wreck in the hope that it will provide a cheaper way of securing a property, an adventurous one in five (21 per cent) would even consider building their own home and 18 per cent would consider buying abroad.

Barry Naisbitt, Abbey's Chief Economist, said, "Given the recent changes to stamp duty, it's disappointing that confidence amongst first-time buyers has shown no improvement. However, on a more encouraging note, our research also shows that they are willing to take a flexible approach to their housing finance and that, if the Bank of England did cut interest rates, this would give them a boost."

Economic outlook

A quarter (26 per cent) of first-time buyers believe that house prices will come down and so are waiting for a better deal before they buy, and 13 per cent believe that interest rates will drop this year. If, as many now think possible, rates do decrease this year, 15 per cent of first-time buyers say that they would be more likely to buy a property. If rates increase, a fifth (21 per cent) say they'd be less likely to buy.

The realities of sharing a mortgage

First-time buyers have a realistic view of the pitfalls of sharing and those who would consider it realise that they need to take steps to ensure that a mortgage sharing arrangement works. Abbey figures reveal that three quarters (76 per cent) of first-time buyers would draw up a legal agreement to record who owns what and half (47 per cent) would have a contingency plan should one of the sharers want to move out and sell their portion.

They also obviously think that two's company but three's a crowd. More than three quarters of first-time buyers (76 per cent) would consider sharing their mortgage with one other person but only 11 per cent would consider sharing with two or more people.

There are, of course, some who wouldn't consider sharing a mortgage, and Abbey's research highlights a number of reasons why this is the case:

• 85 per cent prefer to be financially independent



• 30 per cent have concerns about what would happen if someone wanted to move out



• 28 per cent think that there would be too many disagreements over what property to buy and where



• 24 per cent have concerns about making sure that everyone pays their share of the bills

Getting a deposit

When it comes to saving a deposit, the task facing first-time buyers has become much harder in the past five years with the rapid increase in house prices. According to the Council of Mortgage Lenders, the average deposit put down by first-time buyers is currently around £16,000 compared with approximately £5,500 in 2000*.

Almost a quarter (23 per cent) of prospective first-time buyers surveyed by Abbey say that they intend to raise more than £13,000 as a deposit, 6 per cent hope to raise between £10,000 and £13,000, 14 per cent hope to have between £7,000 and £10,000, and 21 per cent say that they would aim to have between £4,000 and £7,000. Twenty one per cent intend to raise between £1,000 and £4,000 and 7 per cent think they'll have nothing at all.

Most prospective buyers (68 per cent) say that they will save up for the deposit themselves and a further 24 per cent say that they hope to get some or all of it from family. Six per cent intend to forego the deposit altogether and get a 100 per cent mortgage, and a further six per cent are relying on an inheritance as a way of securing the cash.

How Abbey can help

Abbey offers a range of competitive deals to people who want to apply for a shared ownership mortgage (through a housing association for example). They can choose from Abbey's current range of fixed rates and variable rate trackers and will be treated in the same way as any other mortgage customer. They can also choose to take advantage of Abbey's 'Home Buyer solution' on some of its key fixed rates and variable rate trackers, which offers a free valuation and assistance towards legal fees, to help reduce to the upfront costs of home ownership.

Abbey can also provide mortgages to people who want to share the loan with family members or friends. Up to four people can apply and they can choose from any of Abbey's current mortgage deals.

¹ Survey: 1036 potential first time buyers surveyed by Tickbox.net over the period 6-16 June 2005

*Average deposit at Q1 2005 = £16,000; average deposit at Q1 2000 = £5,550