They’re the engine of the market, but have high house prices and mortgage rates put the brakes on homeownership aspirations for first-time buyers? Amanda Bryden, head of Halifax Intermediaries, asks.
It’s been tough to get on the UK property ladder for a very long time, but is it getting easier or harder?
Did faltering house prices in 2023 offer an opportunity for first-time buyers or provide scant relief in the face of higher mortgage rates?
Mixed picture
Despite rising interest rates for much of 2023, many first-time buyers still found a way onto the ladder. They accounted for over half of mortgage business last year, the highest proportion of purchases since 1995.
First-time buyers are still getting onto the ladder through parental support, affordable housing schemes, longer terms and high loan-to-value (LTV) products.
Many are also prepared to compromise and shift their expectations – 61% say they’re willing to move to a different area to buy their first home and 46% would consider a smaller home.
The number of people entering the property market for the first time is now 17% higher than 10 years ago.
However, overall activity was down last year, in line with the wider market, with actual numbers of first-time buyers 21% lower in 2023 than 2022, totalling 293,339.
First-time buyer property prices
The average house price for first-time buyers in 2023 was £288,136, 5% lower than the previous year, according to our data.
Despite this, house prices for first-time buyers are over £132,000 more expensive than 10 years ago (+86%).
Average deposits were £53,414 last year, £21,000 more than 10 years ago (+67%), while the average first-time buyer salary was £43,257 (+30%).
Affordability squeeze
Measuring affordability is an art, not a science, and can include house price-to-earnings ratios, overall mortgage costs, mortgage costs as a proportion of income, house prices, and so on.
The typical first-time buyer property price is now around 6.7 times the average UK salary.
Mortgage costs increased by 25% for first-time buyers in the year to August 2023, from an average payment of £1,095 per month up to £1,364, as a direct result of higher interest rates.
As a proportion of income, average monthly mortgage costs for first-time buyers also rose, from 30% to 36% in a year.
But these figures don’t tell the whole story either. Because how many aspiring homeowners can afford to buy on their own?
In practice, almost two-thirds (63%) are joint applicants. And of course, the Bank of Mum and Dad plays a huge role too.
According to UK Finance, the average household income of a first-time buyer mortgage application last year stood at just under £60,000, putting the house price to joint-income ratio at a much lower 3.8.
Longer-term mortgages (over 30 years) are also now taken by more than half, easing affordability and reducing their average monthly mortgage payment from £1,364 to £1,265.
Regional variations
Affordability is, of course, hugely dependent on where you live in the UK.
We’ve also seen buyers adjusting their expectations, with first-time buyers in particular compensating for higher borrowing costs by targeting smaller properties. This is reflected in property price movements during the first few months 2024, with the value of flats rising most sharply.
Despite rising rates, the monthly cost to first-time buyers of owning a home is now £27 lower than renting an equivalent property, at £1,231. This is the smallest gap Halifax has recorded between homeownership and renting since 2019.
Renters are making the biggest savings compared to first-time buyers in the East of England, where they are an average £2,325 better off each year.
Renting in the South East (£1,859), East Midlands (£1,741) and Yorkshire and the Humber (£1,731) also saw significant yearly savings when compared to owning a first home.
The South West, London and Scotland are the only regions or nations in which owning a first home is cheaper than renting. The largest annual savings are in the South West (where owners are £1,663 better off).
What about first-time buyer mortgages?
Spring has seen some green shoots in the high LTV mortgage market which is good news for first-time buyers.
According to Moneyfacts, there were more high LTV deals on the market in May than there were at the start of the year.
At the 90% LTV tier, there were 696 deals compared to 251 in January and 326 deals at 95% LTV, which was higher than the 251 on the market at the turn of 2024.
However, average rates on two-year deals at 90% LTV have risen to 6.14% from 5.5% a year ago and 3.11% two years ago.
Five-year fixes at 90% LTV are now 5.59%, up from 5.08% a year ago and from 3.22% two years ago.
Looking forward
Halifax predicts overall house prices will fall by between 2% and 4% in 2024, which could help first-time buyers. It also expects interest rates to ease and affordability to improve.
First-time buyers often need the help and advice of a broker to navigate this complex sector.
Our research found that 30% of first-time buyers don’t understand the buying process and over half (51%) don’t know what they can afford.
Around half said they would ask family for advice, look online for help or ask their estate agent.
They are already looking for help but may be unaware of the value you can provide.
By marketing yourself to aspiring homeowners you can help them get mortgage-ready before they even start house hunting, putting them in the best position possible to get accepted for a mortgage first time.
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