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Easing economic challenges bring hope for first-time buyers – Bamford

by: Patrick Bamford, head of international business development at Qualis Credit Risk, part of AmTrust International
  • 16/08/2023
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Easing economic challenges bring hope for first-time buyers – Bamford
It’s an obvious point that mortgage costs, and indeed access to the required loan size, are going to shape much of the direction of travel for first-timers, but it also seems to be the case that this demographic are still willing to cut their cloth accordingly if the opportunity to buy does arise.

Halifax recently pointed out that, even in a falling house price environment – and we must also highlight that this is merely taking us back to values seen approximately 18 to 24 months ago – first-time buyers are doing just this, with activity holding up, and a focus on buying smaller properties in order to meet affordability on higher-priced mortgages. 

The point about house prices certainly needs to be explored a little further, because it’s not as if first-timers are seeing prices at levels from a decade or two ago. In fact, according to Halifax, July’s average UK house price of just over £285,000 is only about £9,000 down on the very peak of last August when it was just under £294,000.  

Indeed, that means that average house prices are still £45,000 higher than pre-Covid levels right now. You can perhaps understand then why first-timers are somewhat restrained in terms of what they can afford, what they can purchase, and how – even with recent house price falls – they are still likely to be paying a significant amount of their monthly income in mortgage costs. 

Plus, we know that ‘average UK prices’ don’t really exist and first-timers have to work in a very regionalised market which could be very different to the ‘national’ picture often outlined via the big house price indices.  


Homeownership still the preferred option 

However, an aspect that may be somewhat different right now, is that those mortgage costs could be lower than the rent they could expect to pay. We’re all acutely aware of what is going on in the private rental sector, in terms of property supply (or a lack of it) impacting on monthly rent levels, and therefore it might look like a positive move for some renters to purchase, if they can square all the necessary circles in order to do this. 

A big part of this is mortgage costs, as is finding the necessary deposit, but there’s certainly been movement in terms of high loan to value (LTV) product choice in the last couple of years.

The introduction of the government’s Mortgage Guarantee Scheme acted as a significant catalyst here, although most lenders offering 95 per cent LTV mortgages are now doing so either on their own or utilising a private mortgage insurance alternative.  

We should not underestimate the benefit of being able to purchase with a five per cent deposit, especially if we are to believe research from Zoopla which suggests 40 per cent of adults under 40 have ‘given up’ on owning their own home.  

Only one in five of this generation think they will ‘definitely’ be able to buy a house in the next decade, and while deposit-saving remains an issue, it would appear that the cost of living, higher mortgage rates and house prices are hitting harder right now. 

Which in a way should give prospective buyers, and the advisers who serve them cause for optimism, because it’s my opinion that we’ll see positive moves in two of the three areas above, and that prices are not likely to be jumping ever higher – at least not for the next few years. 


Hope on the horizon 

If inflation continues to track down, then the cost of living problems should (fingers crossed) get less, while mortgage rates look to have hit some sort of peak, with cuts recently, although I should caveat that we’ve not tended to see this yet for higher LTV products. Which doesn’t mean it won’t happen. 

And so, while there’s no doubting that the rest of 2023 presents a challenging environment for would-be new homeowners, there are glimpses of sunshine amongst the clouds. I expect lenders to offer more high LTV products, rates will track downwards, affordability pressures will ease a little, and this should continue to keep first-time buyers interested and active.  

At least that’s the hope – it would be nice to see this sooner rather than later. 

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