First-time buyers (FTBs) have continued to purchase homes for the past three years despite being affected by the cost of living crisis.
Ed Hampson, associate director of housing research at Savills, said the number of FTBs remained “resilient” compared to movers and landlords despite “significant increases in mortgage rates”.
Last April, real estate agents reported that FTB numbers were 30% below the 2017-19 average. However, by April 2024, it had recovered to just 11% below that average, maintaining its typical share of about 29% of the total home buying market. In contrast, both home moves and rental purchases in April were 24% below average levels for 2017-19, Savills said. 
To maintain this level of homeownership, FTB has had to contend with significant headwinds.
Most parents believe that they need to help their child climb the ladder in some way.
In August, the Bank of England (BoE) lowered its policy interest rate by 0.25 points from its highest level in 16 years to 5%. This is the first reduction in four years.
However, before that, the central bank had raised interest rates 14 times in a row from December 2021 to August 2023, with the base interest rate ranging from 0.1% to 5.25%.
The Bank of England is seeking to combat inflation, which has soared to a 40-year high of 11.1% in October 2022, in the wake of supply chain backlogs and the Ukraine war, leading to higher food and energy prices after the pandemic. took action. Then turmoil occurs in the Middle East.
The annual price increase rate after the central bank's monetary tightening is currently 2.2%.
But the latest Halifax House Price Index shows average house prices rose 4.3 per cent to £292,505 in the year to August, a two-year high.
June data shows that an FTB looking to buy a typical first home priced at £250,000 with an average down payment of 20% would need an annual household income of £60,600 to qualify for a mortgage. , an increase of 2,400 pounds from a year ago. Zoopla.
I don't know if FTB countermeasures are actually necessary, but the budget is necessary.
According to Lloyds Bank, this means just over half (54%) of FTBs now need a loan of more than 4.5 times their income to buy a home. This amounts to 80% of young buyers in London.
intergenerational wealth
Mark Harris, chief executive of SPF Private Clients, said: “The FTB numbers are striking, given the continued rise in average house prices and the high costs of mortgages and general living. “They're doing well, which makes it extremely difficult to save up for a down payment.” ”
JLM Mortgage Network Group Director Sebastian Murphy points out that generational wealth supports these numbers.
“Most parents think they need to help their kids climb the ladder in some way. Rightly or wrongly, that's what we have to do.”
People are looking at homes but don't make offers because they want to know what their budget will be.
Young property buyers also have to contend with the negative effects of rising rents. This not only makes it harder to save, but also forces you to enter the real estate market.
Private rents in the UK rose by an average of 8.4% to £1,286 in the 12 months to August, according to the latest data from the Office for National Statistics. This is down from 8.6% in the 12 months to July, but almost four times the current rate of inflation.
The tight housing market is forcing young buyers to compromise on the location, size and type of property they want to purchase. Savills said a survey of 200 of its customers last September found that FTBs had been “forced to give up on preferred postcodes” over the past two years due to rising rates. Pointed out. Specifically, 45% of FTBs said market conditions led to “significant” compromises regarding location.
long term
As FTBs buy properties, more people seek longer mortgage terms to lower their monthly payment costs.
As of June 2024, 22% of FTB loans had terms between 35 and 40 years, according to UK Treasury data. Just five years ago, this number was 6%.
Governments have a role to play in supporting FTBs because they are so important to the health of the housing market and the economy as a whole.
“Longer mortgage terms are inevitable as monthly mortgage payments become lower and more affordable,” Harris said.
“Of course, it will end up costing you more in the long run because you will be paying more, but if that is the difference between being able to buy now and not being able to buy, People are ready to take this path. 25-year mortgage terms are a thing of the past.”
However, traditional terms such as five-year rates are currently cheaper than two-year fixed rates.
According to Moneyfacts, as of the beginning of the last week of September, the average two-year residential fixed rate was 5.45%, while the equivalent five-year rate was 5.12%.
Murphy points out: You can budget for the next five years based on payment certainty, and the longer term means you'll probably have lower payments at the start of your mortgage, when you need it most. ”
However, there are signs of market recovery following the Bank of England's August interest rate cut.
Our research shows that 50% of FTBs are considering or have considered using shared ownership as a way to get onto the property ladder.
The Royal Institute of Chartered Surveyors' latest housing market survey found that sales market activity improved throughout the month in August, underpinned by the recent gradual softening in mortgage rates.
The survey reported an increase in the number of people considering buying a home, with a net balance of +15 (up from +4 in July), the most positive figure since October 2021.
Over the past three years, financial institutions have worked hard to support this important part of the market.
Skipton Building Society's Track Record mortgages allow for up to 100% loan-to-value borrowing, with lenders using applicants' rent payment records in loan calculations.
Buckinghamshire Building Society has also launched 100% LTV deals, which allow borrowers to use equity in their parent's property to reduce their overall net LTV.
Could building more housing that would be desirable to downsizers, such as bungalows, create family homes that people can afford?
Principality Building Society and Halifax are among the lenders offering FTBs high loan-to-income multiples, up to 5.5 times income.
And in September this year, Nationwide launched a product that allows FTBs to borrow six times their income at fixed interest rates over five or 10 years with up to 95% LTV.
shared ownership
Mortgage lender distribution director Sarah Palmer points to shared ownership as another example of young buyers looking for novel solutions.
Palmer said the model “allows aspiring homeowners to part-buy, part-rent properties that would otherwise be out of reach.”
She added: “Our research shows that 50% of FTBs are considering or have considered using shared ownership as a way to get onto the property ladder.” Ta.
The wider market will certainly benefit from stamp duty cuts and downsizer holidays to free up more family homes.
Building more homes is often considered a solution to the housing crisis. According to UK Finance, there is a housing shortage of 4.3 million homes in the UK.
The new Labor government has promised to build 1.5 million homes a year to increase supply. The country has built only about 1 million homes in the past five years.
Industry groups have been lobbying hard for measures to support the FTB and other sectors that need to be included in Chancellor Rachel Reeves' Budget on October 30. But the government is grappling with a £22bn hole in its public finances, leading to “painful” tax and spending measures to be balanced against a desire to “build Britain back again”. He states that he is deaf.
Tightening stamp duty, capital gains and inheritance tax rules have all been touted as capital-raising measures for the Treasury.
25 year mortgage terms are a thing of the past
But Harris said: “The government has a role to play in supporting FTBs because they are so important to the health of the housing market and the overall economy.”
“Extending the stamp duty holiday, ensuring we build enough homes in the right areas at the right prices, and considering extending the government scheme should all be part of this.”
building type
Hiten Ganatra, managing director at Visionary Finance, argues that what matters is what kind of new housing the government wants to build.
Ganatra said: “Could building more housing that is desirable to downsizers, such as bungalows, create family housing that people can afford?
“We know this is difficult because these homes take up a lot of land that could be put to better use by developers.”
But Murphy argues that the recovery the FTB market has seen over the past year or so is proof that the sector is doing well.
“We don't know whether[FTB]measures are actually needed, but stamp duty relief and holidays for downsizers to free up more family housing could benefit the broader market,” he said. will bring.”
FTB numbers remain remarkably strong given that average home prices continue to creep up.
He also believes the long wait between Labor's victory in the July general election and the first Budget at the end of October has destabilized the industry.
Murphy says: “You need a budget. People are looking at homes but don’t make offers because they want to know what’s in the budget and whether they’re going to be adversely affected by it.
“Everyone would have benefited from passing an emergency budget in July rather than waiting until the end of October.”
Meanwhile, money markets are pricing in further cuts to benchmark interest rates from the Bank of England in November and December.
Action by both the central bank and the Labor prime minister in the final three months of this year could pave the way for home purchases not just for the FTB but for the entire property market.
Click on the post below to read more articles on supplements for first-time buyers.
Leader: Help is on the way
Features: Further
Comments: Lower the ladder for first-time buyers.
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