One of the UK’s largest building societies is urging the government to provide more homebuying support as research warns of a drastic drop in buyer demand.
Leeds Building Society is calling for a greater awareness of Shared Ownership and said tenants should get first refusal on homes landlords are selling amid an exodus from the buy-to-let market.
It comes as research by the lender found 60% of potential purchasers are now delaying their plans by an average of 18 months due to the cost of living crunch.
A survey of thousands of UK adults, conducted in late October, found those looking to buy in the next five years have decided to delay their purchase because of either rising inflation, higher mortgages rates or the prospect of falling house prices.
Of those that have decided to delay their purchase, 89% said it will be for six months or more – and the average expected delay in buying is 18 months.
The survey showed the impact that the current economic environment is having on first-time buyers and the housing market more broadly, with 81% of first-time buyers saying that it has become hard to save for a deposit because of increases in the day-to-day cost of living.
A third said they have been forced to cut back on the amount they can save towards a deposit and 10% have had to stop saving altogether.
Two thirds of first-time buyers reported that they are worried whether they will still qualify for a mortgage as affordability becomes an issue – and almost three quarters are worried about the availability of mortgage deals.
Another 68% of first-time buyers are now worried that – even if they were able to get the deposit together – they would now struggle to meet the higher mortgage repayments.
Overall, one in five first-time buyers said that they’d had a mortgage offer withdrawn and cannot get another, while half fear that they now might never be able to buy a property.
To help buyers, and the property market, Leeds Building Society has proposed that the Lifetime ISA mortgage deposit saving scheme should be repackaged, with the limit on house purchases uprated in line with house price inflation.
If a landlord decides to sell their property, the lender suggests, the Government should support tenants to have first refusal on the purchase of the property, while rent payments should count towards someone’s credit history.
Alongside help for first-time buyers, the research said existing homeowners should also have better access to the Support for Mortgage Interest Scheme.
The lender’s report said a stronger case needs to be made for shared ownership to help people onto the property ladder and added that more homes ultimately need to be built.
Richard Fearon, chief executive of Leeds Building Society, said: “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.”
What Impact Are Current Market Conditions Having on First-Time Buyers?
“Buyers have to consider the market has endured a low interest rate period for the last 15 years”
The housing market is proving particularly testing for first-time buyers, with affordability continuing to be restrictive. Interest rates, for example, have risen significantly since the beginning of the year, with the Bank of England upping the base rate at consecutive Monetary Policy Committee meetings throughout 2022.
While conditions are more complex for first-time buyers than in recent times, Barry Webb, chief executive of Money Saving Experts, explained that buyers do need to consider that the market has endured a low-rate period for the last 15 years. As such, he added that rates are now moving to something more like normality – and affordability is tightening in line with standard historical market conditions.
Impact on house prices
“We have noticed clients’ incomes are higher than back in 2007 when the last recession came about, however since 2008 we have had and sustained historically low interest rates,” said Webb.R
“I believe the housing market will slow due to high house prices and demand because it is unsustainable for first-time buyers,” said Webb. “We have noticed property prices have begun to level off and buyers are reluctant now to pay over the odds for their new homes.”
According to Webb, first-time buyers are essential to the health and growth of the housing market as they kickstart chains – as such, he believes prices will eventually fall to accessible levels for new buyers. Overall, he expects them to drop by between 10% and 15%, which would reduce them to pre-pandemic levels.
“I believe supply will grow as demand reduces because it is now more expensive to borrow money, and, with the cost-of-living increasing, I think people are wary of buying bigger properties because their mortgages will obviously be larger and more expensive,” he said.
Webb outlined that he has already noticed a levelling off of prices for flats and smaller houses, which he outlined is positive because it provides an opportunity for first-time buyers to access the market.
“I also think a reduction in demand for property to pre-pandemic levels will be welcomed by most in the industry because it has been far too busy since the opening of restrictions after the first lockdown,” he added.
Government support
Looking to current government support for first-time buyers, Webb explained that while there are some benefits to Shared Ownership and the First Homes scheme, the market still lacks an advantageous scheme for the open market.
He explained that Shared Ownership, for example, effectively means anyone buying a property under this scheme must pay a mortgage and rent.
Meanwhile, the First Homes scheme “is great” but only if “you live in an area where new home development is rife”, he claimed. “Often people have to move out of the area they want to purchase in so they can utilise the scheme to buy a new property,” he added.
As such, Webb believes the government needs to bring in more schemes for properties on the open market to give everyone a chance to buy a home.
“There is a great deal of work to do but I am confident when rate rises and the cost-of-living slows, the government will look at other schemes for all new buyers,” Webb concluded.
Buyers Look to Rentals Until Mortgage Clarity Emerges – Rightmove
Would-be buyers are looking to the rental market as they pause their property purchase plans until there is clarity on mortgage rates in the new year, Rightmove claims.
It comes as a survey by the portal found that four in ten aspiring first-time buyers already had their total deposit saved, while a further 43% are in the process of saving.
Rightmove said this indicates there is a group of future first-time buyers waiting in the wings to enter the market once they feel like they have more financial certainty.
Its analysis claims there could be the impetus for these ready-to-go first-time buyers to join the market in the new year, especially if mortgage rates do drop.
In the meantime, Rightmove said the number of people enquiring to letting agents to move in the rental market is up by 23% compared with last year, which leaves the total number of people looking to move in either the sales or rental market just 1% below last year’s levels.
However, this group of future first-time buyers are likely to find competition for a suitable rental home much fiercer than in the sales market, and choice more limited, Rightmove warns.
The number of smaller available rental homes – studios, one and two bed properties – is down by 4% compared with last year, while in the sales market it is up 13%.
A survey among letting agents by Rightmove also found that on average they are managing 36 enquiries per property and spending nearly six hours managing viewings per property.
Rightmove has described this as the most competitive rental market on record, with quadruple the number of tenants as rental properties available.
Tim Bannister, Rightmove’s property expert, said: “It’s completely understandable why some buyers, particularly some first-time buyers, are waiting for some more financial certainty.
“Now that there are signs that mortgage rates are settling down, the indicators are that they will stabilise at a higher level than previous buyers had been used to.
“If someone has their deposit saved and is ready to move, they may find that right now presents a better opportunity than a few weeks ago, particularly with more choice coming onto the market and some sellers pricing more competitively in the lead up to Christmas.”
Christian Balshen, Rightmove’s rental expert, added that the level of first-time buyers looking to rentals is adding to issues in the market.
Balshen said: “It’s extremely frustrating for so many people in the rental market right now, with demand so high.
“Tenants are trying to secure viewings for properties as soon as they hit Rightmove, and the stock shortage means that agents are dealing with an unmanageable number of enquiries.
The number of aspiring first-time buyers who have now had to turn to the rental market is exacerbating the situation further.
“We’re seeing some more properties coming to market, but nowhere enough to meet demand. We’re hearing from agents that finding out more information about a tenant earlier is one way they are trying to cope with demand, so we’d recommend to anyone looking right now to give as much info as possible about their position, how quickly they can move, and to get their references ready so they have a better chance of getting the place they want.”