Are the buy-to-let curbs freeing up first-time buyer stock?

More options for first time-buyers?

One of the justifications given over the years for the increased regulation and taxation of buy-to-let landlords has been to free up more housing stock for first-time buyers. Could we finally be seeing this happen?

Recent figures from Hamptons challenge the commonly-held view that the first-time buyer market is struggling. In fact, its research shows first-time buyers have dominated the sales market so far this year, making up a third (33%) of all UK purchases – a new record – and a figure I found myself having to reread to make sure I’d got it right in my head.

This statistic is surprising on a number of levels. Firstly, we’ve seen little in the way of Government support measures since the start of the year, with the industry bidding farewell to Help to Buy in March 2023. Secondly, while we’ve seen a slight fall in mortgage rates in the last few months, I wouldn’t have thought it would be enough to account for such an uptick.

Just to put it into context, over 2023 as a whole, 29% of homes were bought by a first-time buyer, which at the time was a new record. The number of first-time buyers has been gradually increasing since around 2013 when they accounted for just 17% of property purchases. While you might expect the number to have risen through the heyday of Help to Buy, this year’s figure so far is unexpected. So what is accounting for this?

In search of higher yields

While Hamptons partly attributes some of the increase to the release of pent-up demand from last year, it also cites a clampdown on buy-to-let and reduced demand from landlords, potentially freeing up stock for first-time buyers.

While this may be hard to quantify, it wouldn’t be unimaginable, considering the direction landlords are increasingly taking – away from the traditional two-up, two-down properties and more towards Houses in Multiple Occupation (HMOs).

Shawbrook recently reported that, so far this year, HMO mortgages have accounted for 34% of its buy-to-let business – compared to 27% in both 2022 and 2023. As landlords look to diversify their portfolios, it has also seen a rise in HMO business from non-portfolio landlords – increasing from 17% to 21% over the same period.

HMOs offer a number of advantages for investors. Although they may require a larger cash investment initially, being able to adapt a property into potentially five or six households offers not only the potential for a higher yield but also higher rents, given the turnover of occupants and the potential for rental increases.

Alongside this, I expect that what we may also have seen over the last few years is the more amateur landlords exiting the market and deciding their single buy-to-let investment is no longer an investment worth holding onto.

While Hamptons make reference to the preference for smaller homes amongst first-time buyers, this could also be down to higher mortgage rates steering them into such properties. So far this year, over half (51%) of first-time buyers have opted for properties with one or two bedrooms. This compares to last year when 49% bought two-bed homes or smaller. Of course, there may also be an element of first-time buyers opting for smaller homes if they are appearing more frequently on the market.

Other factors at play

We have also seen some strong higher LTV offerings from lenders since the start of the year. Perhaps Chancellor Jeremy Hunt was privy to Hampton’s research when he decided against the Government’s 99% LTV mortgage scheme recently?

Given Yorkshire Building Society/Accord recently launched its very own 99% LTV mortgage shortly after Hunt’s apparent u-turn, one could argue, who needs a Government scheme when the industry is capable of doing it themselves?

Interestingly, there was also no mention of the Bank of Mum and Dad in Hamptons’ report, which I suspect has also played a substantial part in helping first-time buyers enter the market.

The most recent figures from the Office for National Statistics show that, between April 2022 and March 2023, 36% of first-time buyers used gifts from family or friends to help get on the property ladder. This compares to just 20% in 2003. I would not be surprised if we were to see these figures increase further in the coming years as the cost of living continues to limit borrowers’ ability to save for a deposit.

While I suspect I am not alone in being surprised by the first-time buyer figures, it’s nonetheless good news and goes to show how we can sometimes be guilty of talking a market down. According to Hamptons, we are on track to see 363,000 new first-time buyers this year – the highest figure since its records began in 2009 – which is indeed something to write home about.

Simon Jackson is managing director at SDL Surveying

First published with Financial Reporter

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