The number of first-time buyers has fallen this year but the proportion of sales to this cohort remains the same due to the slower market, research suggests.
House prices are under pressure as the number of first-time buyers falls to the lowest level since lockdown. Halifax’s latest First-Time Buyer Review showed the number of first-time buyers fell 22% between January and August this year, compared to the same period in 2022. But they still accounted for more than half of all home loans agreed in the first eight months of this year, a similar proportion as during the same period in 2022 as activity in the wider housing market slowed. This was down from 239,690 during the same period in 2022. Purchases by first-time numbers have not been this low since the pandemic brought the property market to a standstill in 2020. Before lockdown the last time they were below 190,000 was in 2015.
Would-be buyers are finding it more difficult to buy their first homes because of rising mortgage rates, the shrinking availability of mortgage deals and high inflation making it harder to save for a deposit, the bank said. It threatens to limit much of the competition in the market which increased during the pandemic when interest rates fell to record lows and the change in working patterns pushed many to reconsider their living arrangements.
A record number of first-time buyers bought homes in 2021 as they took advantage of cheap borrowing and temporary stamp duty relief. But now the trend is reversing. The biggest fall in first-time buyer numbers was recorded in the South East, which has the second-highest average house prices in the UK, followed by London and East Anglia. The number of first-time buyers in each region was down by around a quarter compared to last year.
House prices are already down by close to 5% from their peak last summer, indices suggest. Meanwhile record pay growth in recent months has meant that the house price to income ratio has fallen from 5.8 to 5.1 since June of last year.
The lender said various challenges in the housing market, including increases to mortgage rates and periods of lower availability of mortgage deals - will have impacted many first-time buyers in recent months.
The research also showed the average price of a first home is now £288,030 – down just 2% in the past year, while deposits are down 12%, although still averaging £54,116. Scotland is the UK’s most affordable place for first-time buyers to get on the property ladder, hosting nine of the top 10 cheapest areas.
Kim Kinnaird, director of Halifax Mortgages, said “the average age of those buying their first property is now 32, rising by two years over the past decade, most likely reflecting that increasing costs are making the road to home ownership longer. Also, when people are ready to buy a home, most are doing so in joint names which helps both in terms of costs and affordability. The expected further fall in house prices this year - alongside stronger income growth - may somewhat offset higher interest rates, which will be welcome news to many. Further, there are some areas which continue to be great options for first-time buyers – the average cost of a first property in Scotland, as an example, comes in at almost £100,000 less than the UK average.”
Commenting on the report, Chris Druce, senior research analyst at Knight Frank, said “with interest rates at a 15-year high, affordability is proving to be a significant drag on activity in the UK residential market. First time buyers, who are typically unable to access the best mortgage rates when starting out, are particularly exposed to this. While we expect average prices to decline by 10% through this year and next as the market continues to cool after a pandemic inspired boom, the challenge of getting onto the property ladder will remain significant. With the political party conference season underway, fresh polices to support first-time buyers are needed. This is because existing measures – such as the doubling of the nil-rate stamp duty threshold – are helpful but time-limited. A replacement for the expired Help to Buy scheme, which at its peak supported 50,000 new build sales annually in England, would prove popular, too.”
Over half of tenants are keen to become homeowners so they can stop wasting money on rent
Aspiring first-time buyers are putting off major life milestones such as getting married (25%) or having children (15%) – until they manage to get onto the property ladder, research has found. Over half of tenants (53%) are keen to finally become homeowners so they can stop wasting money on rent – while 38% say their main motivation is wanting to invest in a property.
But a third (34%) simply want a place of their own so they can settle down and start a family – but those who are currently saving predict this dream will become a reality shortly after they turn 35 years old. The poll of 500 adults, who are aiming to buy a property in the next three years, found other things they are delaying in order to do so include buying a car (33%), and going on holiday (55%).
The research was commissioned by Yorkshire Building Society, whose director of mortgages, Ben Merritt, said “would-be borrowers are facing some particular challenges at the moment when it comes to getting on the property ladder, due to factors like the high cost of living, and interest rate rises squeezing their affordability. However, our research shows the great British love affair with homeownership lives on – so much so that people are prepared to make greater sacrifices than just cutting down on nights out, or making lunch instead of buying it, in order to achieve it.
“In fact, they are even putting off major life events like their education, having a family, or a much-needed break from work, to afford to buy their own place.”
The research found that the average deposit now stands at a staggering £31,916 – rising to £44,128 in London – and will take nearly five years to save for.
Among the prospective purchasers who are receiving money from family, the average amount they expect to get is £18,047 – more than half of their overall deposit. Meanwhile, 64% are looking to buy with their partner to ease the financial outlay.
First-time buyers are also optimistic about the rate at which they will pay their mortgages off, estimating it will take them just over 23 years on average, 43% of those polled said it’s more important to them to have a shorter mortgage, than initial lower mortgage payments.
Ben Merritt added “some of our findings are pretty stark, and people are clearly having to make life-changing decisions. However, we can also see that owning a home is still important to them, and they are determined to find ways of doing so. By the same token, some of the choices would-be borrowers are making could be seen as positive signs of a return to more traditional values, too. Buying a house is the biggest financial commitment most of us ever make, and it’s good that people are taking this seriously in the kinds of ways which were perhaps more typical a few decades ago, before the recent era of unusually cheap credit. The first step in any journey is often the hardest, but also the most important, and it’s vital that as many people as possible get that opportunity.”
Homebuyers warned tax bill set to ‘double overnight’ – stamp duty deadline is looming
Property buyers have just 18 months to avoid a stamp duty hike which could cost thousands of pounds. The temporary increase to stamp duty thresholds will end on March 31, 2025, and it’ll mean tax on an average priced home in England is set to jump by £2,500.
Buyers currently only pay stamp duty if the home costs more than £250,000, but this will drop back to £125,000 when the temporary increase ends. It will take the tax bill on an average priced home in England from £2,822 to £5,322, according to analysis by Coventry Building Society.
First-time buyers currently pay stamp duty if the home costs more than £425,000.
This threshold is set to drop to £300,000 in March 2025. The building society is warning buyers of the deadline, suggesting those intending to buy after this deadline may need to plan ahead if they think they will be affected.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said “buyers need to know the reduction in thresholds isn’t forever – in eighteen months’ time people buying a home over £250,000 will suddenly have to pay an extra £2,500 in tax. That means buyers would need to start saving an extra £140 per month now just to cover the tax hike on their home. In an ideal world, the Chancellor is busy cooking up some long-term plans for stamp duty which will stop the tax bill on an average-priced home virtually doubling overnight. Homebuyers didn’t get a mention in the Spring Budget, so let’s hope there’s something a lot more positive for them in the Autumn Statement.”
Homebuyers collectively paid £1.1billion in stamp duty in August – the highest monthly figure so far this year, the society said.
Coventry Building Society called for stamp duty reform with targeted help for downsizers, last month. While the current system offers one-off support for first-time buyers, there is no support for downsizers, which could deter people from moving to a more suitable-sized property later in life, the Society said.
Mr Stinton said "it could impact the supply of larger family homes, preventing people moving up the property ladder. There are many people who want to move down the ladder as well as up, but the current Stamp Duty regime does more to deter downsizers than incentivise them. The concern here is that we’ll have swathes of people living in homes which aren’t right for them anymore. Most people will want to downsize and save money, but it could cost people thousands of pounds to end up with something which is ultimately less valuable. There could be many cases where it just doesn’t make financial sense to move. The temporary thresholds are lightening the load for all homebuyers at the minute, but – like the stamp duty holiday before it – it’s short-term thinking which is only giving relief to buyers at a pinpointed moment in time. The long-term solution needs to come without a sell-by date and aim to support buyers who need to move both up and down the ladder.”