First-time buyers return

The percentage of applications from FTB’s between April and June 2005 was a market-bucking 23%, a huge leap from 5% at the close of the first quarter of the year, according to the broker’s most recent data.

“The continuing stability of interest rates coupled with the fact that the property market did not take the nose dive that many had expected has shored up confidence in the market,” said My Mortgage Direct managing director Paul Hearnden.

“First time buyers have decided to take the plunge rather than continue to wait for the unknown.”

As a consequence of more first time buyers entering the market there has been an increase of applications from homeowners moving up the property ladder. This figure, which stood at 15% at the beginning of the year, was around 35% by the end of the second quarter, having peaked at 48% in June.

But while the FTB news is positive for the market overall, a particular concern revealed by the MMD survey is the number of interest only mortgages which remain at an alarming level. At 37%, this “potentially disastrous” situation has not improved since MMD first highlighted the problem earlier this year.

“As the Bank of England rate has not changed and two year fixed rates are down, this indicates that homeowners are either having to stretch their affordability or, as we believe is more likely, are reluctant to compromise their lifestyle and are continuing to put off debt repayment in order to enjoy life now,” said Hearnden.

Remortgages on the other hand dropped dramatically in the second quarter to 31% from a previous high of 73%, which may be an indication that mainstream lenders are trying harder to keep existing business (see tables attached)

“Meanwhile, the buy to let sector continues to trundle along in the early teens percentage wise, indicating that investors are a little more cautious and considering a longer term hold rather than the buy and sell attitude we saw a couple of years ago,” added Hearnden.

“We would expect this position to continue for the foreseeable future until property prices show more vigorous movement.”

As expected, the attractiveness of two year fixed rate deals has increased

the percentage of fixed rate applications from 25% in April to 38% in

June. Many of these are priced at the same level or lower than tracker rates so

that people do not feel they are missing out.

Interestingly though, applicants are not opting for the longer term fixed rates which are slightly higher, even though those coming off two year rates now say they wish they had chosen the longer rate two years ago.

Key trends for April - June 2005:

Big increase in first time buyers

Fixed rate applications continue to grow

High level of interest only mortgages still a concern

Marked drop in remortgages