First-time buyers pulled back most from purchasing a home after the increase in mortgage costs following the mini-budget, according to a report showing a widespread slowdown in the property market.
Figures from the property platform Rightmove show buyer demand fell 20% in October compared with a year ago, as house-hunters put their property searches on hold in response to soaring borrowing costs and rising economic uncertainty.
Interest rates shot up last month after Liz Truss’s mini-budget, adding hundreds of pounds to mortgage payments. About a year ago the average new two-year fixed rate was priced at 2.25%, but in recent weeks new rates have leapt above 6%.
Rightmove’s monthly house price index showed first-time buyers were the most hesitant, with demand down 26% in October. Demand from “second steppers” hoping to move from their first home was down 17%, while interest among those at the top of the property ladder was down 15%.
Research from the Royal Institution of Chartered Surveyors published last week revealed that new buyer inquiries fell for the sixth month in a row in October, and survey feedback on buyer demand was negative across the UK. It now takes 18 weeks on average to sell a property, up from 16 weeks typically a year ago.
However, despite the drop in comparison with last year’s figure, Rightmove said buyer demand was still up 4% on 2019’s pre-pandemic levels.
Tim Bannister, Rightmove’s director of property science, said: “Though many are getting on with moves, especially those with a purchase already agreed, understandably there are people who are pausing for thought.
“There’s a group who are ready and able to move and are waiting on the sidelines for more financial certainty. Then there’s a group of first-time buyers or people hoping to trade up who were already stretching themselves financially and may now have had their plans dashed.”
A slowdown in market activity has led more sellers to reduce their asking prices in attempts to agree quicker sales. In October, 8% of unsold properties on Rightmove were reduced, double the 4% recorded in the same month of 2021.
However, it is only a slight increase on the 7.5% of unsold properties reduced in October 2019.
“The era of historically low interest rates and the buying frenzy are over, which could make way for a more normal market that opens up potential opportunities for those who were put off entering the frantic market over the past two years,” Bannister said.
End Of Help to Buy Will Hit 30% Of Property Sales – Claim
The end of the Help to Buy Equity Loan scheme coupled with rising mortgage rates and affordability requirements will mean fewer first-time buyers in the market next year, JLL has predicted.
The agency and property company has predicted that this will contribute to a 30% annual drop in home sales during 2023.
A survey by JLL found 64% of survey respondents did not expect they would have been able to buy a home without Help to Buy.
Almost half of respondents expected they would stay living in rented accommodation for longer than they had planned, pointing to increased demand for a rental property, in a market already struggling will an imbalance between supply and demand
Its research found that 20% of respondents had access to 15% of more of the purchase price, suggesting that Help to Buy allowed buyers to purchase a larger home than the open market would have allowed them to, or in a location they would have otherwise been priced out of.
David Jubb, director of London residential at JLL, said: “Help to Buy has been the backbone of the new homes sales industry since 2013 and it has become the fundamental tool to aiding many people step on to the housing ladder and afford their own home.
“Without Help to Buy we are likely to see increased demand for more affordable areas and price points across the country, where purchasers will no longer be able to buy at the higher price points which help to buy allowed them, with the support of a government backed equity loan.
“With a further 64% of our respondents indicating they would not be able to afford their own home without the scheme, it is likely to put increasing pressure of rental prices and demand in the short to medium term. In turn, this will support rental growth, and potentially the stability of the sales market too”.
The Help to Buy Equity Loan scheme was launched in 2013 and has helped more than 360,000 people to purchase a home in England.
The last applications for a Help to Buy loan had to be lodged by 31 October 2022, with home purchases to complete before 31 March 2023.
First Time Buyers Put Off Purchases and Settle for Renting
New research from Leeds Building Society paints what it calls “a harrowing picture” of the housing market for first-time buyers.
It claims prospective buyers are putting plans on ice due to concerns over unaffordable mortgage rates and rocketing rises in energy and living costs.
It says 81% first-time buyers agree that the cost-of-living crisis has made it harder to save for a deposit, while 60 per cent of those planning to buy in the next five years have delayed their purchase, on average by 18 months.
Some 495 of aspiring first-time buyers now doubt if they will ever be able to buy a property.
The research – conducted in late October during the dying days of the Liz Truss government – suggests that of those potential first timers delaying the plunge have done so because of the rising cost of living (21%), higher mortgages rates (19%) and falling house prices (20%).
Of those that have decided to delay their purchase, 89% say it will be for six months or more – and the average expected delay in buying is 18 months.
People have done so in the hope that the economy will have improved enough to make buying more affordable then, suggesting they don’t have confidence in short term improvements to the economic climate.
Richard Fearon, chief executive of Leeds Building Society, says: “The findings from our research are stark but clear: the home ownership dream in the UK is in crisis. Houses have never been less affordable, and the cost-of-living crisis and the recent increases in interest rates are a further blow to those hoping to buy.
“In the short term, a stronger case needs to be made for Shared Ownership to help more people get the keys to their first home. The key advantage of Shared Ownership is that buyers need a smaller deposit, potentially allowing them to buy sooner than they might otherwise.
“There is a clear lack of awareness about the benefits of Shared Ownership and lenders, brokers and estate agents all have a role to play in changing that.
“However, delivering meaningful change to the housing market requires a number of more structural issues, including building more homes.”
88.8% Of First Time Buyers Making Compromises When Buying First Home
Topping the list was purchasing a home that is in need of renovation, with 37.9% willing to put in some extra work after moving in
Almost nine in 10 (88.8%) first-time homebuyers have to make certain compromises to get on to the property ladder, a study by mortgage comparison website money.co.uk has found.
The platform surveyed 1,000 UK adults who have recently bought their first home to find out what the most common first-time buyer compromises are.
Topping the list was purchasing a home that is in need of renovation, with 37.9% willing to put in some extra work after moving in.
Second and not too far behind was moving away from family, with 36.5% of respondents choosing to relocate further from loved ones to afford their own property. Those who are younger were the most willing to move away from family, with 46.6% of 18- to 24-year-olds, saying that they would do so to purchase their own first home.
The third most common compromise that first-time buyers were willing to make was making a longer commute, with 36.2% having to travel further to get to work. Noticeably, the only group to say their main sacrifice was accepting a longer commute was those aged 45 to 55 (41.49%).
Meanwhile, only 6.1% of people surveyed said they expected to stay in their first homes forever.
Three-quarters of the people surveyed said that they had been forced to look elsewhere due to house prices being too expensive in their preferred area, with only 8.7% saying they managed to buy a house in their ideal location.
More than a third (38.3%) said 10 miles was the maximum distance that they would be willing to relocate. The youngest age group – the 18- to 24-year-olds – were most likely to show some flexibility on distance as they were willing to move up to 20 miles.
To save for a deposit, the most common compromise respondents made was not going on holiday (56.2%), followed by sacrificing takeaways and meals out (52.8%) and purchasing new clothes (47.4%).
Younger Brits Rely on Inheritance to Get On The Property Ladder
Majority of under-35s will keep – not sell – a property if they inherit one.
Around 17% of UK adults aged 18 to 24 and 15% of those aged 24 to 35 are relying on inheriting money in order to get onto the property ladder as house prices are unaffordable for many, according to new research by probate lending experts Tower Street Finance.
The study, which explored attitudes to giving and receiving inheritance, found that of those aged under 35 who already owned a property, around one in 10 (11%) were relying on inheritance in order to buy a bigger home.
The majority of under 35s (58%) said they expected to receive an inheritance from their parents, and a quarter (26%) expected to receive money from one or more of their grandparents too.
Those aged 18 to 24 expected to inherit £105,000 from parents, while 25 to 34-year-olds were hoping for a larger inheritance of £175,000. On average, under 35s expected to inherit £117,000 from their grandparents.
The majority (55%) of 18 to 34-year-olds said that if they inherited a property from family in the next 12 months, they would keep it; a quarter (25%) said they would sell it.
“Falling property prices may be good news for those hoping to get onto the property ladder in the coming months but rising interest rates are set to cause mortgage misery for millions,” said Dicky Davies, business development director and co-founder at Tower Street Finance. “Rising living costs are leaving many with very little disposable income to put away for a deposit too.
“It’s clear many young Brits are relying on receiving an inheritance to get a house deposit together or move into a bigger property, and it’s completely understandable why.”
Davies, however, noted that many were unaware of how long the probate process takes, and the wait they could face to get their inheritance.
“We recognise how frustrating the probate process can be and have developed a range of no-risk solutions to help people access their inheritance sooner,” he said. “Parents or grandparents who can afford to give some inheritance in advance may want to consider this too. Inheritance Tax rules state that cash gifts made up to seven years before someone passes away are not liable for tax, meaning that children or grandchildren hoping to get onto the property ladder soon could get a financial helping hand much earlier.
“There are various levels of tax depending on the number of years between the donation and the death, and the estate value. It’s worth speaking to a probate solicitor to discuss your options.”