Back to the Future: Why FTB volumes are making a comeback

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For the younger generation, trying to get a foothold in today’s housing market is a real challenge. The high-cost of housing makes regular headlines and drives government policy.

While the ultimate solution can only be to build more houses, our latest Financial Advisers Confidence Tracking index contains some encouraging statistics.

Overall, the report shows a buoyant market. Intermediaries have been dealing with an average of 23.3 mortgages per month throughout the third quarter, a figure in line with steady growth seen in mortgage volumes since 2010. And, while there is some way to go to before we match the pre-crisis level of 33 mortgages per month, the signs are good.

The real surprise in this quarter’s report however, is where these mortgages are coming from.

The financial advisers we surveyed report that nearly a fifth (19 per cent) of their business over the last quarter has come from first-time-buyers. This is the highest volume of first-time-buyer activity we have seen since 2001.

So, what is driving this increase in first-time-buyer activity?

There are a number of potential factors at play here. Help to Buy has not only assisted buyers who might otherwise be excluded from the market, but has also sharpened the focus of lenders on this sector – leading to a greater array of products coming to market. Combined with an improving economic picture and low interest rates, now is a good time for young people to be getting on the housing ladder.

On other key indicators also, our latest report contains positive news. The overall FACT rating, which looks at sentiment around current and expected business volumes, is at its highest since 2008. And on the question of landlord demand for new mortgages half of respondents described it as ‘stable’, while 31 per cent described demand as ‘strong’ – a marginal decrease on Q2’s figure of 33 per cent.

Despite this, however, elsewhere in the report we see evidence that borrowers are keeping a cautious eye on the future.

Signals coming from the Bank of England recently have been much more mixed than they were back in the summer, when a 2016 rate rise felt almost inevitable. But despite this, the latest data from our survey shows that people are thinking about how best to manage their outgoings over the long-term, and hedging against the uncertainty of a possible rate rise.

As such the popularity of five-year fixed rate products has continued to grow at the expense of shorter-terms fixes such as two years. Five-year fixes have grown by around 10 per cent since 2013, while volumes of two-year fixes are at their lowest since 2013. We are also beginning to see a dip in remortgage levels, driven by lenders working more proactively to retain customers in a competitive market. The dip also reflects a proportion of the market which remains on highly favourable ‘legacy deals’, arranged prior to the financial crisis.

So, the overall picture from the FACT report is of a market that has distinct echoes of years gone by. First-time buyer levels are back to 2001 levels and confidence back to 2008. While there is room for the market to grow, the future looks good.

John Heron is director of mortgages at Paragon