First-time buyers rush to beat stamp duty deadline

The number of mortgages taken out by first-time buyers increased in December 2011 as borrowers sought to buy before the end of the stamp duty holiday on properties costing up to £250,000, figures from lenders have shown.

Since March 2010, first-time buyers purchasing properties costing between £125,000 and £250,000 have been exempt from stamp duty in a move designed to kickstart the housing market; from 25 March 2012 they will pay 1% on those homes.

Figures from the Council of Mortgage Lenders (CML) suggest buyers are attempting to beat the deadline to save money. With the average first-time buyer property costing about £130,000, buyers typically stand to save £1,300.

In December 2011, 18,700 mortgages worth £2.3bn were advanced to first-time buyers, up 7% by volume and 10% by value on November's figures.

There was also an increase in the proportion of properties bought by first-time buyers within the exempt price band from 50% to 53%, a statistic the CML said suggested "they are beginning to rush through purchases before the concession ends in March".

Lending to movers, however, experienced a seasonal decrease in December 2011 from 29,300 loans in November to 28,700. The value of those mortgages fell from £4.8bn to £4.6bn.

The CML's director general, Paul Smee, said: "We have been expecting a flow of first-time buyers on to the market as the stamp duty exemption ends in March; December's figures appear to show this has now begun.

"The market in 2011, while still subdued, saw a welcome increase in annual gross lending for the first time since 2007 when the financial crisis began. With the eurozone problems still rumbling on, however, we believe there is still a real risk that this year's lending levels will be lower than those seen in 2011."

First-time buyers have been aided by an increase in the number of mortgages available to borrowers with small deposits. This began in 2011 and has continued into 2012 with lenders launching a slew of 95% deals.

According to broker Mortgage Advice Bureau, the number of 95% loan-to-value (LTV) deals currently open to first-time buyers is at a four-year high, with 59 deals available from 21 different lenders.

This compares with just 25 in February 2011, nine in 2010, and three in 2009.

Liza-Jane Kelly, sales director of estate agent Marsh & Parsons, said that while stamp duty was driving sales, an increase in lending at higher LTVs was also a factor.

"The number of higher LTV mortgage deals is slowly increasing, and while criteria still remains a problem first-time buyer demand for finance is by no means dead and buried," she said.

"With rents rising and average mortgage rates so low, many see now as the ideal opportunity to get on to the property ladder."

However, despite the increase in mortgage activity in December, some commentators are still predicting price falls, which could cancel out savings.

Howard Archer, chief UK economist at IHS Global Insight, said the market was likely to be under pressure from weakened economic activity, rising unemployment, muted wage growth and consumer concerns over the economic situation and outlook.

"In addition, credit conditions may well tighten, making it harder to get a mortgage. These factors are expected to outweigh the support to house prices coming from extended very low interest rates," he said. "Consequently, we continue to expect house prices to fall by 5% in 2012."

Eddie Goldsmith, chairman of the Conveyancing Association, said it wasn't too late for buyers who wanted to beat the deadline, "but time is running out".

Goldsmith said buyers should make their solicitor and the property seller aware from the outset that they wanted to complete by 24 March.

"First-time buyers are up against it, but it is possible that if they find a property that doesn't have a chain and if they are putting down a substantial amount and finance isn't a problem, they could still do it," he said.