The St Albans housing market is performing better than expected when compared to predictions back in September/October last year following the disastrous mini budget. House prices have held up in recent months, certainly light years away from the 30% drop that some so-called experts had forecasted. And this is thanks to an unexpected group of people – first-time buyers. Over the last 12 months many St Albans tenants are seeing rents pushing ever higher in the area and are opting to stretching their finances to get onto the housing ladder, despite high mortgage rates.
Bucking the trend
Using data from the Office of National Statistics, Land Registry and the Bank of England, of the 1,353 properties bought in the last 12 months in the St Albans area, 367 were bought by first-time buyers. Representing just under 1 in 3 house purchases, it might surprise many that this has been steadily growing since 2010 when only 1 in 5 house purchases were made by first-time buyers.
Interestingly, first-time buyers have remained the most resilient group of property buyers, even during these difficult times. Usually, first-time buyers would be the most affected in times of stress in the property market (as was the case in the last two property market crashes of 1998 and 2008). However, this time is different. Despite the high mortgage rates, the rental market and its high rents are making buying a more attractive option.
Impact of St Albans rental market
In Q1 2021, the average rent in the St Albans area was £1,349 per month. The St Albans rental market has experienced soaring rents in the last two years, with the average rent increasing to £1,679 a month in Q1 2023, an increase of 24.5%. There are multiple reasons for this: higher mortgage rates for landlords being passed down the line, reduction in supply of rental properties following the government’s introduction of Section 24 taxation rules making it less financially viable for some landlords to hold onto buy to let properties, proposed legislation disincentivising landlords to remain in the buy to let market, plus fewer landlords choosing to enter the market in the first place with only 1 in 8 house purchases being made by landlords.
Meanwhile, demand for St Albans rental properties is high as the population continues to grow. With demand outpacing supply, some renters are having to accept higher prices or offer more than the asking price to secure new tenancies. Other St Albans tenants are offering to pay six to twelve months rent in advance to strengthen their negotiating position. This situation has made many St Albans renters move forward with their plans to buy a home for themselves.
What about the deposit?
It appears the ‘Bank of Mum & Dad’ are helping first-time buyers with their deposits. The national average deposit paid by first-time buyers was just over £63,000 in January ’23, which was 23.4% of their purchase. The lowest rate for a two-year fixed first-time mortgage with a 23% deposit is 4.13%, up from 2.86% a year ago. So, how can St Albans first-time buyers reduce their monthly payments? They can do it by increasing the length of their mortgage. For example, increasing your mortgage term from 25 to 30 years will save you £45 per month in mortgage payments for every £100,000 borrowed. Eleven out of twenty first-time buyers are taking out mortgages of 30 years or more, the highest level since records began in 2005.
And those buyers with a low deposit?
According to the Moneyfacts website, the number of available 95% mortgage deals has risen from between 160-164 in early March to nearly 210 last week. This is the highest level since September 2022, showing that banks are not worried about a property price crash. Moreover, the Coventry and Nationwide Building Societies have reduced their mortgage rates on low deposit (90% to 95%) mortgages over the past few weeks. The average 2-year fixed 95% mortgage is 5.64%, and the best rate is 4.9%.
Re-emergence of the 100% mortgage
However, Skipton Building Society has just launched structured products for certain first-time buyers that will not need a deposit at all if the buyer can prove their rental history. The government mortgage guarantee scheme was also extended into 2023, which partially insures the bank/building society on any defaults on their 95% mortgages. It has been recognised for keeping some of these low deposits available for first-time buyers.
The outlook for the St Albans property market is somewhat uncertain, but a comparatively soft landing is still the most likely outcome and strong demand for both buying and renting will continue to underpin it.
