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The first-time buyers won&#39t be back soon

The volume of first-time buyers entering the market has fallen steadily year on year to 29% of all mortgage lending in 2003 following a peak of 47% in 1999.

Forecasts early this year predicted that FTB activity is likely to settle at 29% for 2004 and 2005.

First-time buyers are seen as the property market&#39s &#39engine room&#39. The accepted wisdom is their entry into the market stimulates activity enabling existing homeowners to move up to the next property level.

There have been predictions that this low level of FTB activity will be damaging. But on current data there seems little evidence of the property market suffering.

What is also intriguing is that during the same period the median income multiple of FTBs has increased from 2.41 to 2.83 while that of non-FTBs has increased from 2.29 to 2.72.

First-time buyers are borrowing more, though they remain well within acceptable income multiples. But despite a lot of 100% deals available, it would seem that saving a deposit remains the first-time buyer&#39s biggest hurdle to entering the market.

A long-expected series of rate rises began in the autumn of 2003 and the MPC&#39s June decision will be known this week. Most predictions are that rates will peak at around 5.50% by the end of 2005. So, from a low point in the middle of last year, are we likely to see similarly low rates in the short to medium-term?

On current form it seems that we are entering a new rates &#39phase&#39 and may have to learn to live with rates around the 5.50% mark beyond 2005.

These rises will require householders to make adjustments to their household budgets. Research shows that for FTBs a percentage point increase in mortgage rates shifts the proportion of household income required to service a mortgage increases up to 14.70% from 11.70%.

You would think that the effect of the base rate changes so far and those predicted would be slowing the housing market but lending figures for April 2004 were again at record levels.

Predictions of house price growth vary but most forecast it will slow to between 8% and 10% by the end of 2004 and 6% and 8% by the end of 2005. But this should be seen in the context of numbers that show strong growth.

And, on the back of house price growth, did you see last week&#39s news that the UK&#39s personal indebtedness is close to the £1 trillion mark? The Monetary Policy Committee will have this in their sights and will look to adopt a prudent approach to growth.

With that in mind, I think it unlikely that the market will see FTB activity return to 1999 levels soon.

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