The data comes from the Yorkshire Building Society

A 21% drop in FTBs spells concerns for property valuations and regulated bridging volume

The number of first-time buyers (FTBs) is expected to have fallen by 21% in 2023, according to analysis from Yorkshire Building Society (YBS).

The amount of FTBs entering the property market is forecast to decrease from 370,287 in 2022 to 290,000 last year, the lowest number since 2013.

However, the decline was less than the 30% drop in overall purchaser numbers; the percentage of FTBs involved in new house purchase activity in the mortgage market rose to 54%, compared to 53% in 2022 and 50% in 2021.

YBS claimed that while cost-of-living pressures, higher house prices, and climbing interest rates have made it harder for borrowers to meet affordability requirements, FTBs are still determined to get a foot on the property ladder.

Ben Merritt, director of mortgages at YBS, commented: “FTBs are the lifeblood of the market and are still clearly keen to buy — there is no doubt their aspirations are being hampered by the multiple factors at play.”

B&C asked industry professionals how the decline of FTBs in the market may impact the volume of transactions in the bridging market this year.

William Lloyd-Hayward, managing director at Sirius Finance, commented: "While transaction levels have fallen in 2023 for the wider market and FTBs, the bridging sector has remained strong as more customers and brokers recognise the benefits and applications of short-term property finance.

“Bridging isn't just used during transactions of course, it is also used as a way of releasing capital for property investors and business owners, and demand for this has grown.

“When it comes to property transactions, bridging comes to the fore when the property market is slow and transaction times are protracted; bridging can help to save transactions where sales fall through and demand for regulated bridging also remains strong."

Vic Jannels, chairman at the ASTL, added: "The outlook for the property market in 2024 remains uncertain and there are significant variances in estimates for FTB numbers.

“Whichever way you assess the market, there is little doubt that FTBs are the engine room of property transactions, providing the catalyst for business further up the chain.

“While there are a range of capital releasing uses for bridging, and the market has actually continued to grow in 2023, regulated bridging is linked to the property market — it can be used for chain breaks to save transactions and facilitate purchases ahead of an existing property being sold, including downsizing, as well as auction purchases.

“There is little doubt that the impact of a reduction in FTBs will be felt by the overall market and this could reduce the volume of regulated bridging activity.

“However, the reduction may only be regional and, as this forms just one of the many diverse uses of bridging, it's impact on the overall sector is likely to be marginal, if at all."

James Bloom, director at Alternative Bridging Corporation, said: “FTBs are still a very active part of the market and, as fixed mortgage rates reduce, this should help to encourage FTBs into the market; some of the best rates available are for FTBs and these are steadily improving.

“With base rates predicted to start to slowly drop later this year, this will also help further — although some FTBs may be sitting on the sidelines waiting for potential price drops, if these happen.

“For the bridging market, if there is a slowdown in the FTB market, this might lead to increased opportunities for bridging lenders as more people who would have sold to a FTB might need the traditional chain break bridge from an established and well capitalised regulated short-term lender.

“As always, where there are difficulties in one part of the market, it often leads to opportunities in another.”

Jonathan Samuels, CEO at Octane Capital, explained that most bridging loans were to experienced landlords adding value to properties, rather than FTBs.

In the EY 2023 UK Bridging Market Survey, 62% of respondents said the top reason for bridging was either refurbishment, business purposes, or purchase for development,” he stated.

“However, just because bridging finance to FTBs directly is less common, their decline in numbers still has the potential to affect the bridging market in two key ways: first, many bridging loan exits are by sale and the purchases can often be FTBs, especially on developer exit loans; second, FTBs sit at the base of many house purchase chains, so they have a disproportionate influence on many other sales falling through.

“This affects bridging loan exits, but also property valuations as a whole.

“The bad news for FTBs though might be good news for landlords — there will be more rental demand and that will likely mean higher rents this year, again!”

Amadeus Wilson, director at SPF Short Term Finance, also commented: “The drop in FTB numbers could well have repercussions for the bridging market.

“We wouldn’t be surprised to see an increase in regulated bridging loans, for example, as chains get longer as vendors wait for the person at the bottom to sell to a FTB — this is a trend which started last year and we expect to carry on into this one.

“There could also be more stock left sitting on the market as FTBs in London in particular would typically buy new-build flats and starter homes, which may struggle to find other buyers.

“Potentially, there will also be more development exit deals as stock isn’t snapped up by FTBs — this could also mean a slowdown in the development market as who wants to build flats which aren’t going to be sold?

“All that said, we expect FTBs to return to the market later this year, should interest rates start falling as forecast.

“While bridging is not often associated with FTBs, we saw a massive uptick in the number of [them] purchasing at auction in Q3 and Q4 last year.

“This trend was caused by high interest rates, with people looking at alternative methods of buying property and realising they could get more [bang] for their buck by buying property needing work at auction.

“These buyers were prepared to take on the renovation risk which meant a smaller mortgage than they might otherwise have required, helping offset higher interest rates.”

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