Why it's only getting worse for first time buyers

Young home buyers hoping for a property crash are going to be disappointed. Rightmove have announced a drop in overall asking prices but report that 'mass market' homes have hit an all time high. According to HSBC, that's not going to change anytime soon.

It comes as no surprise that the demand for larger properties has cooled a little after the tapering of the stamp duty holiday. Rightmove report an overall drop of 0.3% in asking prices this month, but that's not the whole story. Yes, larger homes dropped by 0.8%, however starter homes actually rose by 0.6% to a new high.

HSBC's analysts think that's set to continue. The bank suggests numerous reasons why house prices will remain high for years to come. Among them - ​

Too many people chasing too few properties

Estate agents are reporting the lowest number of available properties in years at a time when demand shows little sign of slowing down. It has now reached the point where 10% of all new renters last month were people who had sold a property and were waiting for somewhere to buy. In the longer term, the construction of new homes is likely to fall short of demand.

Big jump in savings

With spending options curtailed by the pandemic, bank deposits have increased by some £250 billion in the last eighteen months. Much of this is likely to find its way into property in the coming years. Indeed, estate agents are reporting enquiries from first time buyers with deposits of 20% or more.

Cheap borrowing

While there are conflicting opinions on this topic, HSBC seem to feel that any response to inflationary pressures will be balanced off by a need to support jobs and the economy. In the Bank of England's recent survey of mortgage lenders, the response was that banks will continue to support the property market with interest rates at or slightly below current levels.

Stronger than expected jobs market

As furlough starts to unwind, the number of job losses appears to be lower than originally feared. The Bank of England expects the economy to be robust through the autumn, leaving most people's incomes unaffected.

Return of the buy to let investor

When George Osborne reduced mortgage tax relief for landlords paying high rate income tax, there was a fall off in the number of buy to let investors. The same happened when stamp duty was increased for second homes. Now that the initial shock has passed, investors have returned to the market, with buy to let purchases back to pre-Osborne levels.

Young buyers on average incomes still look to be frozen out of the market. It may be long indeed before there is any respite.