Navigating through turbulent waters - first-time buyers in a volatile market

From November 2022, we've seen a consistent increase in interest rates from BoE with various side effects in the market and a major hit to first-time buyers. New stories seem to change the landscape, which is fuelling an uncertain time for borrowers. One month we see demand increase, and then the next the figures reflect the downturn in prices. All of which adds to the volatility of the market.

The market's wild ride: 

The housing market has been a whirlwind of ups and downs, with demand fluctuating, and prices seemingly playing a strange game. The Office for National Statistics data shows a 1.9% increase in house prices in the 12 months to May 2023, followed by a -0.4% decrease in May 2023.

However, the property prices reflected a drop from April 2023, although this did not mark first-time buyer's appetite to enter yet the property market. It looks like a 'waiting game' between rates and prices, to buy at the lowest rate and price.

In reflection, on Rightmove's July 2023 House Price Index, we can see fewer properties for sale available in the market compared to this time back in 2019. The percentage stands at 12% and this points to two factors; sellers might over-pricing and high rates.

The daunting price hike:

As if entering the property market wasn't challenging enough, we have seen at surge in property prices over the past decade that has thrown on first-time buyers an even bigger curveball. The average UK house price rose from £167,716, which was back in January 2013 and by January 2023, it reached £290,000 which marked an increase of 73%, with wages not increased by the same amount. 

We can see from the latest Office for National Statistics house affordability report in 2022, that the struggle to bridge the ever-widening gap between annual salary and purchasing a property is tough. The data from the report illustrate that a full-time employee in England needs 8.3 times their annual salary to purchase a property, and that's just mind-blowing.

Let's unfold more data; since last year, the average cost for a property for first-time buyers increased by 13%, reaching the price of £302,010. The average deposit requirement stands up to 21% of the purchase price, which leads to a staggering £62,470. That's an 8% increase from last year! Although, the increases in first-time buyers in Q1 2023 accounted for over half with the percentage to stand at 52% of all home loans. According to Financial Reporter, it was the highest percentage that we've witnessed in the last decade.

July's index shows 3% higher buyer demand than 2019 and this means 3% higher pre-pandemic times. Nationwide reported UK house prices fell at their fastest annual pace from nearly 14 years in May. Further adding to the confusion of where prices will settle and when is the 'right time' to buy. This brings up the question if buyers increase their deposit are they able to achieve affordability? Well, if they are fortunate enough to increase their deposit; but with BoE interest rates unlikely to fall soon, this leads to a dead-end.

The daunting price hike, first-time buyers, affordability report, residential mortgages, specialist finance

Is there a way into the property market for first-time buyers?

There have been initiatives like the Help to Buy scheme to support first-time buyers, by providing free equity loans for new-build properties. It boosted the UK economy as it meant more properties being built. The scheme provided five-year interest-free loans to 375,654 applicants for a decade, ending in October 2022.

There are alternative schemes available in the market to support first-time buyers, including stamp duty. How does it work? It provides stamp duty relief to first-time buyers for properties priced below £425,000. For properties priced between £425,000 and £625,000, the stamp duty is 5% on the portion over £425,000. For properties priced above £625,000, standard stamp duty applies.

We are also seeing some lenders offer deposit-free mortgages, whilst appearing attractive they are often above average industry rates, and mortgages with higher LTVs have raised concerns as this contributed to the last crash in 2008.

There is still hope for first-time buyers to enter the property market, although depends on different factors coming together for the final decision.

The uncertain road ahead?

It’s tough to predict what lies ahead in the market, with inflation and lending rates causing imbalances. Economic insiders predicted that BoE may increase the base rate to over 5.8% by March 2024.

This is not a sign to lose hope; where there are challenges, there are also opportunities. It’s essential to stay optimistic and remain vigilant in the current market as a first-time buyer.

Navigating in the high street to support first-time buyers, might not be ideal, given the market’s volatility especially if there is a complex case. There are specialist lenders like West One who understand the unique challenges a first-time buyer faces and can support an individual’s needs by manually underwriting an application.

The journey for first-time buyers may seem rough through these turbulent waters, although seize opportunities, stay optimistic and navigate on the right property path, it can be proven challenging, but it can be achievable.

The uncertain road ahead? Residential Mortgages


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