If we know the UK press, then many will interpret the latest data from the Council of Mortgage Lenders as evidence that first time buyers are returning to the housing market in droves, but don’t you believe it.
According to CML, back in January a mere 30% of all new mortgages were to First Time Buyers. This level compares to 48% in 1998. Yet, the latest data shows that by the final quarter of last year the First Time buyer ratio had risen to 38%. Does this mean the market is back in rude health again? Not on your nelly!
CML has changed its method for collecting data. Data used to be supplied via a voluntary survey and inevitably the sample size was quite small (sometimes as low as 5% of all mortgage providers.) But since April it’s been compulsory to provide all information on mortgage lending to the Financial Services Authority, and it’s this information, which theoretically at least has 100% coverage, that CML now taps into.
The question is, does the change in method of collecting data explain the reported pick up? According to Capital Economics, it probably does. For five months last year, CML was collecting information using both methods, and during that period the older small sample indicated hardly any increase in First Time Buyers at all.
As we all know, when buying a house a critical factor is the length of the chain. If a First Time Buyer is buying off you, and you are not planning to buy a property, then it’s nice and simple. Equally if you are selling to a buy to let investor, things should go smoothly too. First time Buyers and Buy to Let investors are the entry point for the chain. The Buy to Let investment rationale has diminished in recent years, and therefore the First Time buyer is crucial to maintaining the market.
The CML data is therefore vital to for getting a feeling of underlying strength. It’s a shame then that we are no longer able to compare like with like.
Meanwhile, still with the housing market, the Royal Institute of Chartered Surveyors (RICS) released the January instalment of its barometer index yesterday. RICS asks surveyors if prices were up or down in the month and the balance forms the RICS index. Many argue that the RICS survey is perhaps the most reliable indicator of the strength of the market since it reflects underlying sentiment. Other reports might be more accurate for measuring what is actually happening, but can be distorted by the transaction type. For example, if cheaper houses proved quite sticky, but more expensive houses were still selling, then average house prices would actually rise quite significantly. Ironically a surge in First Time Buyers should, on paper, lead to a fall in average house prices, since this sector of the house buying public tend to purchase cheaper homes.
This statistical quirk could explain why the RICS index was negative throughout the second half of 2004 and most of last year, while all around other surveys were reporting rises.
All the more interesting then, when we report the RICS index was up again in January. With the balance between surveyors saying prices rose and those saying they fell standing at 9, that’s the third month in succession the index has been in positive territory.
At plus nine, the index is still much much lower than two years ago, and only time will tell if the reported resurgence is set to continue, or if it will prove to be no more than a blip, mirroring the High Street’s pre Christmas rise, followed by sharp fall.
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