First-time buyer numbers soar: Why now may be the right time to purchase

The number of first-time buyers soared last year. More people took that all-important first step on the property ladder in 2018 than any other year in the last decade, figures show. There are many reasons why those waiting to buy could benefit from following the trend.

Figures published by the Yorkshire Building Society estimate:

  • First-time buyers were responsible for half of property purchases with a mortgage; the highest portion since 1995
  • 367,038 first-time buyers secured a mortgage in 2018, up from 362,800 in 2017
  • It’s now estimated that first-time buyer mortgages have exceeded 2007 levels and are almost double that of 2008, when the financial crisis impacted the housing market
  • First-time buyer mortgages are now just 9% lower than the pre-crisis peak of 402,800 in 2006

The trend indicates that while it’s still challenging to enter the property market, it is still accessible for those struggling to take the first step.

Nitesh Patel, Yorkshire Building Society’s Strategic Economist, said: “Property prices have grown at a faster rate than wages over the past 12 years, which has created difficulties for first-time buyers. Various factors have helped to alleviate this challenging environment, although the market is still pretty tough for those wanting to become homeowners.”

So, why is property becoming more attractive for first-time buyers now?

Property price increases have slowed

Property prices rising at a far faster pace than wages has led to increasing pressure for first-time buyers. Some have found themselves priced out of the market and unable to secure a large enough mortgage to purchase a home. However, economic uncertainty has led to the pace of growth slowing recently.

Data from Nationwide suggests that house prices only rose by 0.5% in December when compared to a year earlier, the slowest annual growth rate since February 2013. Between November and December, house prices in the UK fell by 0.7%.

Low interest rates

According to a Moneyfacts report, mortgage rates offered to first-time buyers have dropped to a new low. The average mortgage rate available to those with a 5% deposit fell by 0.09% during December 2018 to 3.54%. This compares to a year earlier when the rate was 4.15%. While the difference may seem small, it means lower monthly repayments and significant savings over the term of the mortgage.

Taking a £120,000 loan over a period of 30 years, for example, at an interest rate of 4.15% would mean monthly repayments of £583. This compares to repayments of £562 if the interest rate were 3.54%. A saving of £21 a month may seem minimal, but it adds up to £7,560 over the mortgage length.

The rising number of low deposit mortgages

One of the biggest challenges that many first-time buyers face is pulling together a deposit. As house prices have increased, so too have the deposits required. If you’re already paying rent, it can seem impossible to raise the deposit needed.

More lenders are now offering mortgages with just a 5% deposit required. According to the Moneyfacts report, the number of first-time buyer mortgages available, with a lower deposit, is 304. This compares to 217 just a year ago, and 17 in 2008 at the height of the financial crisis.

The growing number of products has helped to make the property market more accessible.

Support for first-time buyers

Government initiatives and support from other organisations have also made it easier to step on to the property ladder. First-time buyers, for example, no longer have to pay Stamp Duty, making a purchase more affordable. For those that are eligible a Help to Buy ISA (Individual Savings Account) or Lifetime ISA (LISA) can help to deliver a boost to deposits.

The Help to Buy equity loan scheme has made it easier for first-time buyers that have been priced out of the market. Through the scheme, buyers need just a 5% deposit and can benefit from a 20% government loan. As a result, buyers need to take out a mortgage that is just 75% of the value of the property.

The number of shared ownership properties has also increased. Allowing first-time buyers to purchase a portion of a home, it’s an initiative that can reduce both the deposit and the size of the mortgage needed to take a step on the property ladder.

Caution is still needed

While the above factors make it an excellent time to purchase a first home, caution is still needed. You need to ensure that you can afford to meet ongoing mortgage repayments, you could risk losing your home and investment otherwise.

Another key concern for some aspiring homeowners is that property prices will fall in the coming months. This could leave you with negative equity, where your home is worth less than the value of your loan. This is a particular concern for those that take out a mortgage with a high loan to value (LTV) ratio, as your equity in relation to the loan is already high. However, over the long term, house prices are likely to correct themselves. As a result, viewing your property as a home and long-term investment is important.

Thinking about interest rates is also key. The Bank of England base rate has been low since the financial crisis. Despite two rises in the last eighteen months, it’s still just 0.75%. As we’ve already noted, it means your mortgage repayments are lower. But it’s anticipated that they will continue to rise, albeit at a gradual pace. Will you still be able to afford your mortgage repayments if the interest rates rise to 3%?

If you’re an aspiring first-time buyer and want support in finding the right mortgage product for you, please contact us. We’ll help you navigate the challenges of purchasing your first home.