Majority of them are more confident about getting the keys to their dream home.
First-time buyers in the UK are now more confident of getting on the property ladder than at the beginning of this year, research conducted on behalf of HSBC UK has revealed. Nearly seven in 10, or 68%, of those hoping to buy their first home in the next 12 months said they were more confident about getting the keys to their dream home than they were at the start of 2023.
A variety of reasons for wanting to purchase a property were cited by first-time buyers, including their perception that it was cheaper than renting (21%), wanting their independence (20%), financial security (17%), and providing for their family (14%). One in nine, or 11%, said it was because they regarded their first home as an investment.
“It’s encouraging to see more optimism among first-time buyers,” commented Andrew Matson, head of mortgages at HSBC UK. “The first half of this year has been challenging, but the shift in attitudes is reassuring and highlights the resilience of the housing market. While we don’t have a crystal ball to see what the future holds, it is pleasing to see the positive sentiment running throughout our research.”
First-time buyer economy’s value to hit £74.1 billion by 2025 Another study has estimated that the value of the first-time buyer economy will reach a total of £74.1 billion by 2025, with mortgage lending to this segment of the market alone predicted to reach £71 billion in two years’ time. According to the latest research by Coventry for intermediaries in partnership with the Centre for Economics and Business Research, first-time buyers could spend an average annual total of £3.1 billion on extra costs relating to home purchase by 2025.
This year’s estimated mortgage lending to first-time buyers is £56.5 billion. That figure is forecast to increase by 16% to £65.3 billion next year and by 26% in 2025.
Results of the survey of 1,000 first-time buyers across the UK also showed that they were spending an average of £3,400 on additional upfront costs including moving and legal fees, as well as surveyor, valuation, and mortgage fees –£300 higher than the costs reported in last year’s survey and above inflation. In addition, it is estimated that they will spend £4,900 individually on renovating and redecorating their home within 12 months of moving in, making the combined total spend on top of their mortgage around £8,300.
“There’s no doubt that this year has been challenging for borrowers, with high mortgage rates, inflation, and the ongoing cost-of-living crisis impacting people’s financial decisions,” said Jonathan Stinton, head of intermediary relationships at Coventry for intermediaries. “Despite this, new buyers still need and are keen to get onto the property ladder. According to our report, first-time buyers have accounted for almost a third of all UK property transactions over the last five years and are a huge contributor to the UK economy. As the mortgage market and economy stabilises in the next couple of years, we will see even more first-time buyers ready to enter the market.”
First-time buyer activity recovers in September
The value of the first-time buyer segment dipped to £4.8 billion in August – nearly half the value of the market just two months prior when it stood at £8.8 billion in June, according to the first-time buyer snapshot published by digital bank first direct. However, by the end of September, first direct reported that said value had increased back up to £6 billion.
The volume of first-time buyer applications was also down by 40% between June and August, but increased from 24,642 back to 30,733 in September – a 25% increase month-on-month. “The August figures showed that the recent volatility in swap rates had a big impact on the mortgage market overall,” stated Liam O’Hara, head of mortgages at first direct. “However, this was followed by much stronger figures in September, which demonstrates the resilience of the market. Despite the recent volatility, we know that appetite for home ownership remains high and that the market often bounces back quickly when it stabilises. Now more than a year on from the mini budget in September 2022, it will be interesting to see what Q4 has in store.”
Huge jump in young buyers on ‘marathon’ mortgages
Young Londoners desperate to get on the housing market are signing up at an alarming pace to “marathon mortgages” that last at least 35 years, warn financial advisers. High numbers of under 30s are buying houses or more usually flats with mortgage deals that extend beyond a typical retirement age of 67 in the latest sign that there is a huge gap between demand and supply in the capital’s property market.
While the longer-term deals cut monthly repayments, they also hugely increase the size of the total debt in ways some warn could later be seen as a mis-selling scandal encouraged by big banks.
Figures from Experian show that in 2020 11% of under 30’s in London who opened a mortgage did so with a term of 35 years plus. In 2023 this figure has risen to 27%. The data also reveals that 38% of Londoners currently have a home loan that will continue beyond those borrowers turning 67 – much higher than the UK overall, where the figure is 33%.
The South East of England is the region with the highest percentage of mortgage holders (40%) with a deal that runs past normal retirement age and become "pensioner mortgages".
James Jones, Head of Consumer Affairs at Experian, says “our data suggests that Londoners under 30 are looking to secure longer mortgage repayment terms to help keep down monthly repayments on their homes. Looking at our data, we can see that there has been a 144% increase in under 30s taking out a mortgage with a 35-year plus term, in just three years.”
Alan Davison, Personal Finance Distribution Director at Together said “while many will view these ‘marathon mortgages’ as a viable way to try proceed with property ambitions – it's key that first-time buyers don’t all now rush the starting gun and commit to longer-term repayment which might not be the best option.”
Craig Fish of Lodestone Mortgages says “London continues to struggle with soaring property prices, and now we face a higher and uncertain interest rate landscape, there are a growing number of homeowners that are considering mortgages with terms in excess of 30 years. These extended terms can be tempting, after all they offer lower monthly payments that make home ownership more affordable. However, its crucial to understand the pitfalls that come with these types of mortgages, especially in the current climate. Long terms mortgages seem to be an attractive option for many, primarily first-time buyers or those with tighter budgets. But with London property prices at record high levels, it’s imperative that one considers the overall cost of home ownership and how much you’re willing to pay in interest over the years. Don’t just focus on the monthly payment now.”
Japan’s lifetime mortgages used to make us laugh. Now they're almost here
When was the average interest rate on newly drawn mortgages last above 5%?
The answer is almost exactly 15 year ago in November 2008, half a generation ago. For the past seven years it has bounced along at around the 2% mark, hitting a historic low of 1.5% in November 2021. What a different world that was. Since then the cost of taking out a mortgage has rocketed at a remarkable rate.
Today’s figure from the Bank show that they breached the 5% mark - 5.01% to be precise, in September. It has been a dizzying ascent in the cost of borrowing, a more than three fold rise in just two years, that is probably without parallel.
It would not feel so punitive on young buyers if prices had come down to meet them halfway. But they have not, at least not significantly. Latest figures from the Land Registry show the average price of a home in London stood at £535,597 in August, only a whisker down from the £543,597 all time high recorded in August 2022.
No wonder, as our lead story reveals today, desperate young buyers increasingly are having to resort to ultra-long terms on their mortgages - 35 years or more - that will leave many still laden with debt into their retirement just to clamber on the ladder. It is an echo of the Japanese life-time mortgages that we used to laugh at in this country.
With luck the rise in rates on new mortgages has topped out with the pause in the Bank of England’s monetary tightening. Just don’t expect it to fall far anytime soon.