By The last few years has seen first-time home buyers navigate a difficult road to homeownership.
While there are signs of a clearer journey ahead with the extension of some government schemes and the return of more favourable mortgage interest rates, there is still a combination of challenges that first-time buyers in the UK may face when trying to get on the ladder.
But what are they?
Affordability
One of the biggest challenges that first-time buyers are no stranger to is affordability.
Notwithstanding additional costs such as legal fees and surveys, property prices in the UK, particularly in urban areas, are often high and can be out of reach for many first-time buyers.
Across Britain, the average price paid by a first-time buyer is around £245,000, a number that has climbed by 29.5% over the last five years.
This, combined with the cost of living, has put further pressure on affordability leading first-time buyers to become increasingly reliant on additional help such as the Mortgage Guarantee Scheme, the Lifetime ISA or shared ownership.
According to the UK House Price Index from the ONS and Land Registry, average house prices increased by 9.8% in the 12 months to December 2022, down from 10.6% in November and buyer demand was up by 11% in the first two weeks of February compared with the same period in 2019.
Deposit Requirements
Most mortgage lenders require a deposit of at least 5% of the property’s value, which can be a significant amount of money for first-time buyers to save up.
If we take the average price paid for a first-time buyer of £245,000 into account, this equates to a deposit of £12,250.
There are schemes around to help first-time buyers get ‘mortgage-ready’, such as the Lifetime ISA and the new First Home Saver recently launched by Coventry Building Society.
These products are designed to encourage forward planning, saving and education.
We have seen several schemes come and go over the last few years – the Help to Buy ISA was particularly popular due to its flexibility and generous bonus, but this is no longer open to new applicants.
It is important to ensure that we educate our first-time buyers around the schemes that could save them a lot of money.
I was fortunate enough to benefit from the Help to Buy ISA, which I had saved into for a couple of years before I was able to buy.
The added benefit for me was the government bonus which covered the cost of my solicitor’s conveyancing fees.
First-time buyers should also consider additional costs associated with buying a property as these costs can add up and may impact a buyer’s budget.
The average first-time property buyer spends £9,780 on additional upfront costs, including moving fees, legal fees as well as surveyor, valuation and mortgage fees.
Competition
First-time buyers may face competition from other buyers, particularly in areas where demand for property is high.
This can make it harder to secure a property, particularly if there are multiple offers.
As March approaches, so does the busiest time of the year for the UK housing market and Rightmove have already reported an 11% increase in enquiries to estate agents in the last two weeks to February 20, compared to the same two weeks in 2019, before the pandemic and the last time the market was “normal”.
While we are embarking on the busiest time of year, we are undoubtedly moving into a slower-paced market as buyers are taking longer to find the right home at the right price due to the higher cost of repaying a mortgage.
Mortgage availability
The chaotic mini-budget saw first time buyers hit the hardest as mortgage rates rocketed.
But as the rates are once again down, it looks like first time buyers are returning to the homes market.
Data has shown that someone looking to take out a five-year fixed mortgage with a 15% deposit will be facing an average interest rate of 4.82%, down from October’s 5.90%.
Estate agents have reported that they are seeing more buyers with more confidence and an increase in choice as the rates continue to drop slightly; however, revised budgets are now common as some first-time buyers will still be priced out of their original plans and may need to look for a cheaper property, save a bigger deposit, or consider higher monthly mortgage repayments as an outgoing.
Housing supply
The supply of affordable housing can be limited in certain areas, particularly in cities such as London where demand for housing is high.
This can make it difficult for first-time buyers to find suitable properties within their budget.
The Centre for Policy Studies (CPS) released The Case for Housebuilding Report, making the case for the need to build more houses in the areas where people want them.
The report outlines that there is overwhelming support for a large number of new houses being built on a national level, and on a local level, people support small or moderate numbers of homes being built in their area.
The report further highlights that in the 1960s, 3.6m homes were built, while in the 2000s and 2010s 1.5m homes were built each decade.
While there are challenges of competition and housing supply which may delay some buyers from stepping onto the ladder, we are beginning to see a slight fall in house prices and more affordable mortgage rates on the horizon.
This, combined with the availability of schemes to help first-time buyers save for their first home encourages some confidence that the road to homeownership will not be as tumultuous as it was twelve months ago.
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