First-time Buyer  

Housing storm looming as first-time buyers remain underserved

Housing storm looming as first-time buyers remain underserved
(FT montage/Dreamstime)

There were more than 400,000 first-time buyers last year, accounting for nearly half the home purchase loans in 2021, according to Halifax.

Average house price in 2021 was £264,000 and the average first-time buyer deposit was £54,000. Meanwhile prices in some parts of the UK outstrip average salary by 6.9 times, and in other areas, notably London, it is in the low 10s. 

Given how house prices have continued to rise in 2022, that ratio is likely to have grown.

But if people in a group that accounts for half the home purchase loans are increasingly unable to get on the property ladder, this could spell disaster for the housing market.

And the situation could be made worse, with a continued lack of supply, over-priced properties relative to a first-time buyer income and a tightening of criteria by lenders as we head into a hurricane of falling incomes and rising costs, warns Martin Stewart, director and founder of London Money.

So, is there a fix for the first-time buyers market?

Carl Shave, director at Just Mortgage Brokers, says addressing the problem may require a dramatic mindset shift.

“Rising house prices in turn give the need for larger deposits and/or larger mortgages," he says. "Affordability can only stretch so far and lenders have a duty to lend money sensibly so there has to be a limit to maximum mortgage sizes.  

“Affordable house prices are key. However, until as a society we stop seeing our homes as an investment, and rather as a place to live, house prices will continue to rise as we seek the top value when looking to sell. Supply and demand together with commercial interests are also strong contributing factors."

Without the bank of mum and dad supporting first-time buyers, Stewart says the UK would be faced with the property equivalent of an “ecological disaster akin to all the bees disappearing”. 

He adds: “Chains do not normally start unless a first-time buyer is present and while their numbers have grown over the past 10 years, much of that has been down to government and family support. It has made for a synthetic first-time buyer market.”

Shave agrees. He says that while government-backed house purchase and mortgage schemes can assist first-time buyers purchase their home, they cannot offer the longer-term solutions that are needed.

“One of the knock-on effects will see the continued rise of lifetime mortgages or equity release where parents will be using their property value gains to fund the next generation of homeowners," Shave adds.

The scale of the problem is huge and tackling it will require a multi-layered approach as well as some new ideas.

Creating solutions

A group of mortgage brokers concerned by the problem have banded together to call on lenders, house-builders, MPs and regulators to collaborate to find new ways to help first-time buyers obtain mortgages.