The combination of lower house prices and interest rate reductions to historically low levels has created a marked improvement in monthly costs for those buyers wanting to take their first steps onto the property ladder.

Indeed, says the Halifax, the proportion of a typical new homeowner's disposable earnings devoted to mortgage payments has almost halved from a peak of 50% in June 2007 to 28% in June 2010, below the 34% average over the past twenty-five years. In addition to this, 94% of first-time property purchases are now exempt from stamp duty, with 54% of first-time buyers saying that is has helped them to purchase their home.

Despite the marked improvement in monthly affordability, tightening in lending criteria since the onset of the credit crunch in 2007 may have deterred first-buyers from trying to secure mortgage finance. There are now indications that the environment is improving.

Only 3% of first-time buyers say a lack of suitable mortgage products has prevented them buying a home and eight out of ten first-time buyer mortgages are approved**. Whilst deposits in loan to value terms increased during 2008, the average deposit put down by a first-time buyer today has been unchanged as a percentage of purchase price since early in 2009.

Stephen Noakes, commercial director for mortgages, commented: "We believe it's important that first-time buyers understand that whilst there are still challenges in raising deposits, other market conditions are more positive.

"Affordability has significantly improved, meaning the amount of a typical first-time buyer's monthly pay packet that needs to be dedicated to their mortgage is now below the twenty-five year average and importantly, despite perceptions, eight out of ten first-time buyer mortgages are approved".

Key Findings

  •   Despite slower growth in house prices and interest rates holding at historically low levels, only 35% of buyers say that they are taking advantage of the current economic climate.

  •   Eight out of ten first-time buyer loans are approved.**

  •   94% of all first-time home purchases are now exempt from stamp duty.

  •   Only 3% of first-time buyers state that a lack of mortgage products has held them back from purchasing their first home.

  •   First-time buyers put down an average deposit of £30,380 in 2010 quarter 2, equivalent to 22% of the property price.

  •   The typical buyer takes between three and five years to amount their deposit in the current market.

  •   A 10% deposit on an average first-time buyer property today is £13,940.

  •   64% of buyers purchase a home because they’d rather own than rent.

  •   Seven in ten are making lifestyle sacrifices in order to save their deposit.

  •   Nearly a third of first time buyers are stepping onto the property ladder in order to take the next step in life such as getting married or having children.

  •   One in ten buyers is putting off getting married or having children in order to buy a home.

  •   12% are taking a second job to help their finances.

  •   Over a quarter of homebuyers have not been on holiday in over a year to save money for a deposit.

  •   10% move back in with their parents to help save for their deposit.

  •   44% of buyers will compromise on the area they move to in order to get the type of property they want.

* Source: CML, Banksearch, 'Regulated Mortgage Survey', June 2010
** First-time buyer mortgage approvals across Lloyds Banking Group brands for first half of 2010

In spite of the expected deceleration in the market over the summer, applicants registering their interest in purchasing a new home through Hamptons outnumber new properties coming onto the market by 7:1.

Goldberg continued: "We saw the pricing expectation gap between vendors and purchasers deepen during Spring 2010. We are, however, looking towards an autumn where low interest rates coupled with higher stock levels will create a stable market environment.

"July has been an active and positive month for Hamptons International but the overall market still shows signs of inconsistencies with some areas outperforming others".

The percentage of sales being made to first time buyers (FTBs) also increased from 21% to 26%, suggesting that the decision to raise the threshold of Stamp Duty Land Tax to £250,000 is translating into sales.

Michael Jones, President of the NAEA, said the market report showed that the fragile recovery that has defined the market in 2010 was continuing. "Demand and supply both increased in July, which is great news for the housing market", he said. "However we should not get carried away – what we are seeing is a slow, steady and patently fragile recovery. One thing which is interesting is that consumer confidence in the market appears to be high, despite apparent uncertainty elsewhere about the future of the economy".

Mr Jones said that agents typically expected a slower month in August, as families put aside housing plans to enjoy the holiday. And he warned that lenders are still being too restrictive.

He said: "One message that estate agents throughout the country are giving us is that the market needs more lending".

For the second quarter as a whole, there were 136,000 house purchase loans, worth £19.7 billion. This is 20% higher (by volume and value) than the last quarter and up 17% (by volume) and 30% (by value) than quarter two 2009.

For remortgaging, the second quarter saw 77,000 loans (worth £9.6 billion), up 2% by volume, with no change in value, from the first quarter, but in stark contrast to house purchase lending, the figure was down 20% (by volume) and 19% (by value) from the second quarter of 2009.

There were 52,200 loans (worth £6.2 billion) to first-time buyers from April to June, up from 43,400 (worth £5 billion) from January to March and 85,300 home mover loans (worth £13.5 billion), up from 70,700 (worth £11.2 billion).

Credit criteria have become a little more fluid in recent months but remain tight overall, in the context of continuing business and market constraints.

CML economist Paul Samter said: "For the time being, the effects of government spending cuts have yet to make an impact on mortgage demand, and activity continues on its upward trajectory.

"But we still expect house purchase activity to be muted in the coming months. Both consumer demand and lending capacity remain distinctly difficult to call, especially in the light of the government's austerity measures and their possible impact".

Demand for property, measured by the net balance of new buyer enquiries, fell for the second month in a row, from -6 to -10. Difficulty in securing mortgages and increased uncertainty about the prospects for the economy may have contributed to caution from potential homebuyers.

The number of new vendor instructions, which in effect measures the amount of properties coming to the market, increased. 33 per cent more surveyors reported a rise rather than fall in properties to their books, up from 28 per cent in June.

This is the highest reading since May 2007, the month before the initial planned introduction of HIPS. Since the abolition of HIPS in May this year, it appears some homeowners are now a little more willing to test the property market.

In keeping with the trend of increased supply to the market, the average number of properties on surveyors’ books also rose by 4.1 per cent from June, taking the average to 69.1. Meanwhile, the average number of sales per surveyor stayed flat, at 16.6 (down 0.1 per cent).

As a result, the sales to stock ratio – a useful indicator of market slack, says RICS – fell to 24 per cent, the lowest level since June 2009. Newly agreed sales remain largely unchanged, with one per cent more surveyors reporting a rise than fall in the number of transactions, down from three per cent in June.

Looking forward, expectations for house price increases have also turned negative, with 28 per cent more surveyors expecting prices to fall over the coming months, up from six per cent in June. Despite this, sales expectations remain positive, with eight per cent more surveyors expecting sales to rise rather than fall, although this is down from the previous month.

"The fall in the RICS house price measure is broadly consistent with most other recent data that has been released, said RICS spokesperson, Ian Perry. This is a reflection of both the increase in supply following the scrapping of HIPS and the more cautious stance from buyers.

"Significantly, the forward looking price expectations numbers suggest that this softer trend will continue through the second half of the year. However, agents are still generally optimistic about sales activity which should benefit from more realistic pricing of properties".

Housing market activity is broadly stable. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase in the three months to June - a leading indicator of completed house sales - were modestly (2%) higher than in the previous quarter, on a seasonally adjusted basis.

But activity remains significantly lower than a few years ago with approvals 56% lower in 2010 Quarter 2 compared with 2007 Quarter 2.

Low mortgage rates have reduced the burden of servicing mortgage debt, says the report. Nationally, typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in 2007 Quarter 3 to 30% in 2010 Quarter 2. This key measure of affordability is at a more favourable level than the long-term average over the past twenty-five years (37%) and is a key factor supporting housing demand.

In separate research to be released later this week, Halifax has found that the total value of privately owned housing stock in the UK more than doubled over the past decade. There was a 118% increase from £1,719 billion in 1999 to an estimated £3,755 billion in 2009. During the same period, the retail price index rose by 29%.

However, since 2007 the value of housing stock in the UK has declined by 8%. This reflects the reduction in house prices between mid 2007 and early 2009. The improvement in house prices in 2009 saw housing value grow by an estimated 2% during the year.

Commenting on the new data, Martin Ellis, housing economist at the Halifax, said: "House prices increased by 0.6% in July, reversing the fall in June. Overall, there has been little change in prices during 2010 so far. The mixed pattern of monthly rises and falls over the first seven months of the year is consistent with a slowing market. It is also in line with our view that house prices will be broadly unchanged over 2010 as a whole.

The increase in the number of properties for sale over the past few months, boosted by the recent abolition of HIPs, has relieved much of the pressure that was driving up prices in 2009. Low interest rates and a recovering economy, however, are underpinning demand and continue to support the market".

The annual change numbers are the quarterly year-on-year figures. These figures provide a better picture of underlying trends compared to a monthly year-on-year number as they smooth out any short-term fluctuations.

1. INDEX

The standardised index is seasonally adjusted using the U.S. Bureau of the Census XII moving-average method based on a rolling 84-month series. Each month, the seasonally adjusted figure for the same month a year ago and last month's figure are subject to revision.

2. STANDARDISED AVERAGE PRICE

The standardised average price is calculated using the Halifax's mix adjusted methodology.

3. PRICE/EARNINGS RATIO

Ratio of the Halifax standardised average price to national average earnings for full-time male employees. Price Earnings ratios revised to reflect new data in the Annual Survey of Hours and Earnings (ASHE).

^e Halifax estimates.

"A key indicator of the health of the market is the ratio of asking-to-achieved prices, which hit 97% in May and which is now 95%. Most agents across the capital believe that asking prices are between 5% and 10% higher than where the actual market is at the current time.

"This month's price fall is only one piece of evidence, but allied to the decline in asking-to-achieved prices we believe that our forecast for around 5% price growth in central London for the whole of 2010 will be borne out, which suggests that prices will fall by around 3.2% during the final five months of the year.

"The healthiest parts of the market are the entry level end and the very top end – with prices only slipping by 0.2% in the sub-£1m and the £10m+ markets. The weakest markets are the mid range £3m to £5m sectors, which had seen the biggest price rises over the past 15 months".