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First-time buyers emerge from pandemic-led credit squeeze of 2020

25th February 2021

  • Lockdown continues to stimulate demand from older homeowners, who have boosted cash purchases to 30% of all sales, reaching a twelve year high

  • By contrast, the share of first-time buyers reached their lowest level since 2016 last year, accounting for 31% of sales, down from a peak of 35% in 2018 

  • But first-time buyers are returning, with demand up 5% since January and more activity in the £100,000 - 250,000 price bracket, boosted by high loan-to-value mortgage availability 

  • In the wider market, housing demand remains elevated, +12.4% higher than this time last year, despite the imminent stamp duty deadline

  • Meanwhile, sellers are reluctant to list homes for sale while the third lockdown continues, maintaining upward pressure on prices which are running at +4.3% growth year on year - matching their highest rate since 2017

  • The market retains an underlying strength and buyers are ostensibly committed, with no signs that fall throughs are gathering pace - instead are running below the three year average 

Ahead of the Budget on 3rd March:

  • There is increasing evidence that landlords are looking to take gains ahead of possible reforms to Capital Gains Tax in the Budget, as well as changing rental market dynamics

  • The case is growing for an extension to the stamp duty holiday for sales agreed in 2020; while 750,000 homemovers should benefit from full or partial SDLT relief, 70,000 sales are expected to miss out due to the increased time it’s taking to process transactions

Thursday 25th February, 2021, London: First-time buyers are emerging back into the market after recording a fall in share of sales from their 2018 high, in the wake of 2020’s pandemic-led credit squeeze. As lenders withdrew 90%+ loan-to-value mortgages attempting to de-risk at the onset of the recession, many first-time buyers were forced to put their plans to buy on hold. These are the latest findings by Zoopla, the UK’s leading property portal, in its monthly House Price Index.

First-time buyers return to market after 2020 credit squeeze

Lockdown continues to stimulate demand from older, more established homeowners, who have boosted cash purchases to 30% of all sales, reaching a ten year high [see figure 1]. By contrast, the market share of first-time buyer sales reached its lowest level since 2016 last year, accounting for 31% of sales, down from 35% in 2018.

The pandemic coupled with the rapidly shrinking range of high loan-to-value mortgage products squeezed first-time buyers’ purchasing ability, creating a sharp juxtaposition with their previous position as the engine of the housing market.

Despite the cash-fuelled advantage of older, high-equity homeowners, many of whom are not reliant on mortgages in order to move, evidence suggests that first-time buyers are returning to the market, with a 5% rise in demand from first-time buyers in the first six weeks of the year compared to Q4 2020.

In addition, sales agreed for properties priced between £100,000 and £150,000, a sector of the market where first-time buyers are typically more active, have risen by 26% from Q4 2020.

Analysis suggests that first-time buyer activity has been boosted by a gradual return of higher LTV mortgages and the ongoing benefit of stamp duty relief that will extend beyond 31st March*.

Furthermore, with first-time buyers making a return to the market, this goes some way to explain why demand is enduring while supply is failing to keep pace [bearing in mind that first-time buyers have nothing to sell, while some sellers are reluctant to have buyers visit their property during lockdown].

Figure 1


Market momentum shows no sign of slowing despite SDLT deadline looming

2021 recorded its strongest start to the year since 2015, and while the end of the stamp duty holiday is less than six weeks away, it does not appear to be holding back new entrants to the market, with demand up 12.4% on last year** [see figure 2].


Sales agreed are also 10.1% higher year on year**; however, some sellers are continuing to hold back because of lockdown and coronavirus risk, with total stock levels down 13.8% compared to 12 months prior**. New stock remains 14.5% below 2020 levels**, pushing house prices up to 4.3% growth year on year - matching the highest level of growth since 2017.

Meanwhile, regional markets are demonstrating a mismatch in supply and demand, with demand outstripping supply by the greatest margin in the North East and Wales. By contrast, demand is down year-on-year in London, but this is more reflective of the enormous jump in demand at the start of 2020. Current buyer demand in London is still running ahead of 2019 levels.

Despite the imminent stamp duty deadline, there are no signs that fall throughs are gathering pace; instead, they are currently running below levels seen over the last three years.

Figure 2

Zoopla’s Pre-Budget analysis ahead of 3rd March 2021

Investors pre-empt possible changes to Capital Gains Tax

Since the government called for a review of Capital Gains Tax last year, data suggests that some investors are exiting the market, as the proportion of previously rented properties being listed for sale starts to rise [see figure 3].


Some investors may be selling in order to beat changes to capital gains tax; or looking to take advantage of higher capital values; while others may be rationalising their portfolios due to changing rental market dynamics.


This goes some way to explain why the supply of property is rising in London, with a higher proportion (13%) of new supply, made up of formerly rented property, now coming to the market. While this is a notable trend, it still represents a small number of properties overall, accounting for less than 1% of the private rented sector.


Figure 3


The case grows for a stamp duty holiday extension

Nearly 750,000 homebuyers in England are set to benefit from the stamp duty holiday, collectively saving almost £5bn.

Of that 750,000, 600,00 buyers who agreed a sale from May 2020 onwards will not pay any stamp duty as a result of the holiday, saving an average of £4,660 each or £2.8bn collectively - assuming they complete before 31st March deadline.

A further 140,500 people buying homes costing more than £500,000 will benefit from a reduction in the amount of stamp duty they pay - saving £15,000 each or £2.1bn in total (although they will still have to pay tax on the portion of their property’s value over £500,000).

However, 70,000 sales agreed in 2020 are at risk of missing the stamp duty deadline and a case for an extension to the stamp duty holiday for those who agreed a sale in 2020 is growing and could be implemented in the Budget. 

In a normal year, anyone who agreed a sale in any calendar year would expect to have completed by the end of March the following year. However, a ‘bulge’ in the sales pipeline has meant that the average time it takes from sales agreed to legal completion is approaching four months.

Gráinne Gilmore, Head of Research, Zoopla, comments: “The strong bounce in demand seen at the start of the year has been further boosted by increased numbers of first-time buyers active in the market. Many of these buyers will be taking advantage of the increased number of home loans now available for purchasers with smaller deposits, and most will be less concerned about the ending of the stamp duty holiday on March 31st.

“First-time buyers have no property to sell, so their increased activity in the market is further pushing up buyer demand ahead of supply. As the growth in demand continues to outstrip the supply of homes, it puts more upwards pressure on prices. We can see this in the +4.3% average price growth in the year to January, matching the highest level of growth seen in nearly four years. 

“One area of the market where there is more supply coming to the market is among landlords who are bringing their investment properties forward for sale. The share of homes listed for sale which were previously rented has risen in nearly every region during 2020, as landlords reassess their portfolios in light of current rental trends, or ahead of possible tax changes for investment property. While the homes for sale account for a very small proportion (less than 1%) of rented stock, it is a noticeable trend emerging in the market.”

*Traditionally 78% of first-time buyers who purchase a property for £500,000 or less are exempt from paying stamp duty in a normal year, according to Zoopla Research

**Demand, sales agreed and new supply measured year to date cumulative growth v. last year (to 14th February)



- Ends -

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