First-time buyers ignoring interest rate time bomb

The CML statistics show borrowing creeping back up for this class of buyer, even before interest rates rise next spring, which will put more pressure on household budgets.

This week Mark Carney, Governor of the Bank of England, hinted that interest rate rises may come in next spring.

By value there was £4.6bn of lending to first-time buyers in July, up 10pc on June, and 39pc on the previous year.

While some of this can be explained by the annual rise in house prices.

The Government stimulus via the shared equity scheme, Help to Buy, pent up demand and an improving economy have all pushed up house prices over the last year and the collective amount borrowed.

However, the increase in the number of first time buyers coming to the market is a result of high rental prices and the help from parents who have made triple digit appreciation on their property since 1991 and are downsizing to help their offspring get on the property ladder.

The typical loan size for newcombers to the market also continued to rise in line with the annual growth rate of house prices from £123,750 in June - now at its highest ever.

Wage growth has started to support house purchases as the average salary rose from £37,095 in June to £38,900 in July.

Referring to the data, Jonathan Harris, director of mortgage broker, Andrerson Harris, said: "Borrowers still need to be cautious about the level of borrowing they are taking on and not overstretch themselves."

"Some restraint on buyer interest is expected to come from more stretched house prices to earnings ratios, the prospect that interest rates will soon start to rise (albeit gradually) and tighter checking of prospective mortgage borrowers by lenders," said Howard Archer, chief economist at IHS Global Insight.

Despite the enthuasiasm shown from first-time buyers for home ownership, the price hikes seen in London over the past year have showed signs of cooling as more sellers register their homes for sale and buyer demand is dampened by sky high house rises.

The regions have started to recover but again the pace of growth may calm as stricter mortgage criteria tightens.

These factors weighed on this morning's monthly survey from the Royal Institute of Chartered Surveyors, which found that British house prices rose at the slowest pace in a year during August.

The surveyors polled said that speculation about higher interest rates has dampened buyer confidence.

The RICS house price balance fell to +40 last month, its lowest level since last August.

Agreed sales fell for the first time since September 2012 and there was a second consecutive fall in buyer inquiries.

"Some of the momentum has come out of the housing market of late reflecting in part concerns over a likely rise in the cost of borrowing at some point in the not too distant future," said Simon Rubinsohn, chief economist at RICS.

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