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Coronavirus set to stall demand from first time buyers

Lucy Harley-McKeown
·2-min read
Estate agent giving house keys to customer and sign agreement in office.
First time buyers are in decline, according to housing website Zoopla. Photo: Getty

First time home buyers’ (FTB) share of the market is set to diminish by the end of 2020 and into the first quarter of next year, as existing homeowners are increasingly mobile.

Research from housing website Zoopla’s monthly house price index showed that movement in the market, is starting to be impacted by COVID-19, the recession, and reduced availability of higher loan to value mortgages

Weaker demand amongst FTBs correlates directly with when lenders started to withdraw high loan-to-value mortgage products in early June, Zoopla said.

The South East, Scotland and the South West have seen the greatest level of divergence between homeowner demand and first time buyers since the start of the year.

Watch: Why are house prices rising during a recession?

According to the data, demand from existing homeowners is holding steady at 37% above pre-coronavirus levels - stimulating more supply which is coming to market at higher prices.

The overall demand has cooled somewhat, but still remains 30% above pre-coronavirus levels. The recent tightening of lockdown restrictions is also set to support demand in the near term.

The figures show that despite a spike in demand amongst first-time buyers when the English housing market reopened after a 50 day closure on 13 May, demand has trended downwards over the last two months and is now back in line with pre-COVID levels.

Credit: Zoopla
Credit: Zoopla

Meanwhile, house prices are up 2.6% year on year, up from 1% a year ago, with sales agreed running 3% above those achieved in 2019.

First-time buyers have been the driving force of the housing market for the last decade - supported by Help-to-Buy and greater competition amongst lenders in the 90%+ loan to value mortgage market.

At the same time, the proportion of sales by existing homeowners has declined.

However, Covid-led market uncertainty combined with the recession and a reliance on higher loan to value mortgages to fund purchases is starting to impact the scale of first-time buyer demand and, moreover, their ability to purchase a home.

Watch: What is shared ownership?

READ MORE: UK housing bubble 'set to burst' with 14% hit to prices next year

Richard Donnell, research and insight director, Zoopla, said: “Housing market conditions remain strong as new restrictions are introduced to control the spread of COVID.

“These changes are likely to continue to support housing demand in the near term as the importance of the home grows. However, the housing market will not remain immune to the impacts of weaker economic growth and rising unemployment.

“A change in the mix of buyers is supporting market conditions with sustained demand from equity rich existing owners seeking more space and a change in location.”