For instance, the fact that house prices seem likely to fall throughout the year – judging by current levels and future prospects – has to be weighed against the fact that interest rates have risen significantly. This impacts on potential buyers’ ability to meet affordability measures and being able to secure the level of loan required to actually purchase the property.
Somewhat ironically, this anticipated fall in house prices – with the expectation that values will continue to drop through the rest of the year – may not be the game-changer that many first-time buyers could consider it to be.
That’s because, as the Intermediary Mortgage Lenders Association (IMLA) points out in their ‘New normal…’ report, the very low interest rates available over the past few years have more than outweighed house price increases, meaning buyers have still been able to afford the larger mortgages required to purchase them.
At this point – and we should point out there is an expectation that product rates will continue to drop even if the Bank of England base rate rises again – with outgoings under severe pressure due to the cost of living increases, and inflation looking fairly sticky for at least the short term, potential first-timers may not get the full benefit of any house price reduction because it has to be married up with mortgage access.
Desired properties
Many experts are suggesting that buy-to-let landlords – particularly those with only one or two properties – will find their ability to maintain their properties severely pressured in 2023, and that many may choose to sell, increasing the supply of properties to market for potential homeowners.
But do first-timers want to buy ex-private rental sector (PRS) properties? And, if supply is taken out of the PRS, this is only likely to see rents rise further as tenant demand remains very strong. This could mean potential buyers see more of the income going towards rent when, at the same time, they are still trying to meet the substantial deposit levels required to get on the ladder.
The other question to ask is around the type of homes first-timers now want. Do they want to buy secondhand homes, given the increased popularity of new-build in recent years?
And, on that very point, 2023 will see the end of the Help to Buy Scheme therefore one of the key channels to new-build home ownership (and supply) will be taken away for first-timers.
Other routes to homeownership
The positive to that is we do have a variety of alternate schemes such as Deposit Unlock, which is gathering real momentum in the market and is specifically designed to support first-timers and their pursuit of new-build homes. We hope this (and other schemes) can fill the gap and will finally get the support of the wider industry rather than just hoping Help to Buy gets a last-minute reprieve.
You can understand why it is difficult to predict what level first-time buying might have achieved at year-end. Certainly, there are some positives to further draw upon to suggest activity can be at least maintained. We currently have another stamp duty holiday of sorts, and as IMLA also point out, despite the rise in interest rates, mortgage affordability is likely to be back to levels seen in 2005/2006, and ‘buyers… will not face a high mortgage payment burden compared to the historical average’.
However, major obstacles still remain, not least the ability to save for a deposit – often cited as the biggest challenge, particularly for those buyers who don’t have access to a Bank of Mum and Dad to help them get to the required level in a quicker timeframe.
The need for low deposit options
This is why it is so important we have a thriving high loan to value (LTV) mortgage market.
I’m pleased to say numbers have been improving in that regard over the past few months, but we are still not back to a pre-September level, and of course, prices are that much higher than back then.
However, given it is anticipated that transactions will fall in number and that purchase lending in particular could fall back this year, we hope more lenders will look at an area of the market where there is decent demand, and either continue or start to support those who want to make their property-owning dream a reality over the next 12 months, but only have a small deposit in order to do so.
