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Chart of the Week


Week 47, 2017: First-Time Buyers v.s. Average House Price




The chart shows that the number of first-time buyers decreased dramatically from 190,900 in 2006 to just 72,700 in 2009 as a result of the global financial crisis, a drop of 62%. The average UK house price dropped in 2008 from just under £180k to £150k and took until 2014 to recover. They subsequently rose to nearly £207k in 2017, representing an increase of nearly 30% on the 2006 figure despite the backdrop of wage stagnation since the crash. In 2006, the UK house price to earnings ratio for first-time buyers was 5 (for London buyers it was 6.5). This has now risen to 5.4 for the UK and has soared to 10.1 for London. Extreme regional variation is further highlighted by recent data from Halifax, showing that the average price for a first house in London was nearly £410k (requiring an average deposit of almost £107k), whereas in Northern Ireland, first-time buyers would pay just short of £118k and require an average deposit of just £16.5k. Although the number of first-time buyers has recovered steadily in the years since 2011, the 2017 figure is still only 85% of 2006 levels, despite the UK population growing by over 5 million in the same period. The number of people able to purchase their first home was initially boosted by the launch of Help-to-Buy scheme in 2013 and even further by low interest rates.

What does the chart show?     

The orange line displays average house prices taken from Q1 of each displayed year. The blue bars denote the total number of first-time buyers in each year.

Why is the chart interesting? 

In Tuesday’s budget announcement, the Chancellor centred his flagship housing policy: assisting first-time buyers via the permanent scrapping of stamp duty for homes up to the value of £300k. This relief was extended to those purchasing homes in more expensive areas, so that those paying up to £500k only pay stamp duty on the amount above £300k. Although praised by some, the Chancellor’s measures are certainly not a panacea for Britain’s housing problem; there remains a dearth of affordable homes. Although the Chancellor pledged to deliver 300,000 homes annually until 2025, it is projected that every 5 years, over 1 million new households form and last year saw nearly 0.7million existing households classed as ‘overcrowded’. The stamp duty measures have drawn criticism for effectively only offering support to higher income households who stand ready to buy homes in the near future and little support for those who are struggling to save enough. Indeed the Office for Budget Responsibility says that the stamp duty cut will push house prices higher still, anticipating an increase of 0.3% in 2018. It further asserts that the main beneficiaries of this policy will be those who already own property. Advocates of the policy would suggest that it amounts to a significant saving of up to £5k for approximately 80% of first-time buyers, something the Chancellor believes to be an incentive to start saving. Others express scepticism at use of the term ‘affordable’.