Key Market Drivers are the First Time Property Buyers: It is Official According to the Latest Research Findings

According to latest research finding first time property buyer activity has reached the levels of the 80s when the UK property market went through a period of adjustment. Current indications are that that cycle is about to repeat itself because first time buyers are largely absent from the market.

(PRWEB) August 27, 2006 -- First time property buyers drive the property market forward and give it the momentum that it needs for continuous upwards growth. The whole cycle works like this. First time buyers come into the property market at a given level. For the purposes of this discussion, the entry level is basically determined by the house price and their individual and joint savings as the case may be which goes towards their deposit. Having acquired their first property, they normally work towards their ideal property whether it is a three bed semi or a penthouse. The progression from the first property to the desired one is a step by step process which entails selling one, buying another and so on until the goal is reached.

Under performing stock markets, pension’s crisis and a desire to provide a nest egg for ones retirement have made property a much better and therefore more attractive investment. Money coming into the property market has pushed the property prices high so much so that first time buyers have been priced out of the market. Research by Royal Institute of Charter Surveyors is a stark testimony of the worsening situation. The findings of the Institute indicate a steady downward trend in terms of the affordability by the first time buyers. Since 1996, the accessibility index has fallen by 300%.

The organisations accessibility index found that first time buyers must raise from their personal savings etc £29,200 in order to meet their market entry or buying costs of a typical house. Nearly £30,000 upfront cost includes deposit, stamp duty and legal costs of the transaction. Based on average take home pay of a working couple, they need to save nearly three quarters of their income to have any chance of getting on the property ladder.

Interestingly enough, current property accessibility levels have fallen to the same level as in the 1980s, when high interest rates kept the first time buyers out of the market. During the 1980s, the market adjusted as markets invariably do but the consequences for a lot of property investors/buyers including a small proportion of first time buyers were dire. Negative equity being the natural side-effect of the market adjustment as was the case in the 80s, buyers/property owners were made to compensate for market over-valuation.

Is the market ready for another adjustment? Indications are that market adjustment has already started. Interest rates are on the rise with the second increase being talked about before the year end. Using the analogy, what goes up must come down. Clearly, property market has been on the up for a long time and therefore an adjustment is long over due.

What about the investors? Markets tend to attract investors because of high returns. However, there is normally a consolidation point when the market reaches a saturation level; there are too many investors in the market place. Aside from consolidation, investors tend to move from investment to investment because they have to satisfy their shareholders by achieving higher and higher returns. Therefore, investors tend to be very mobile.

The key feature of the first time buyers, by contrast, is long termism. They are not looking for a quick return. Their intentions are not focussed on making a certain amount of money from their property. They just want affordable housing. It is these long term buyers that give the housing market the stability that it needs. If they are priced or frozen out of the market then it is no wonder that signs of market instability are surfacing. In conclusion, first time property buyers are key market drivers by virtue of their inherent investment strategy namely long termism and that is why they have a significant influence on the property market and its subsequent movements. Without first time buyers, market will adjust and soon.

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