The dire situation first-time buyers face

Looking at today’s property market, how long before the first-time buyer goes the way of the Dodo or Sabre-Toothed Tiger?

Related topics:  Blogs,  Mortgages
Cameron Orcutt | OnLadder
29th June 2022
Cameron Orcutt is CEO of OnLadder
"As an industry we need to look to the future to ensure first-time buyers don’t become extinct and instead have access to flexible and fair financing."

While the future of those looking to get on the property ladder for the first time has looked shaky for a while, we’re currently facing an almost perfect storm. House prices are at record levels; there is a cost of living crisis and inflation is predicted by the Bank of England to reach double figures this year – the worst it has been for 40 years. Consequently, interest rates are being hiked in an attempt to stop inflation rising even higher.

Despite these adverse conditions affecting the market, some still may be lulled into a false sense of security because the data is not yet showing the real plight of the first-time buyer in 2022. According to Barclays, 2021 was a better year for the first-time buyer than the previous year. Its data shows the average deposit paid by a sole first-time buyer last year was £61,100, down significantly from £71,400 in 2020. For joint buyers, the average deposit was £61,000 in 2021 which fell slightly from £63,800 in 2020. While that may seem like good news, the bank notes that it takes their average first-time buyer eight years of saving for a deposit before they can buy – and that 56% wouldn’t have been able to get on the property ladder without family support.

That of course was last year; latest data from the Office for National Statistics (ONS) revealed that UK average house prices increased by 9.8% over the year to March 2022, with the average house price totalling £278,000 in March, £24,000 higher than the same month last year. It’s unlikely that those looking to get on the property ladder have saved extra over the past year to counteract price rises.

All of these factors are working together to stretch borrower affordability to the limit.

It’s in this environment that the government’s Help to Buy: Equity Loan scheme is coming to an end. While the initiative has had it fair share of critics it has been a market mainstay for nearly a decade, helping hundreds of thousands of borrowers. Latest figures show that from 1 April 2013 to 31 December 2021, 355,634 properties were bought with an equity loan, which carry a value of £22 billion.. While the scheme was open to anyone purchasing a property, first-time buyers made up 82% of all purchases, highlighting the vacuum the scheme’s withdrawal will create.

In addition, with a chronic housing supply shortage and a buoyant labour market, prices are unlikely to decline anytime soon, leaving borrowers with few options to get on the property ladder or even take a further step up the ladder. Irrespective of what some politicians say, potential first-time buyers aren’t going to get on the property ladder by simply giving up Netflix and café lattes.

Over the next few years, there will be limited options for first time buyers other than the Bank of Mum and Dad and increasingly parents will be unable to provide the amounts necessary to help their offspring.

We are living in uncertain times, but as an industry we need to look to the future to ensure first-time buyers don’t become extinct and instead have access to flexible and fair financing. This will require cooperation and innovation between all parties to develop new solutions fit for the first-time buyer of both now and in the future.

Will we be able to look ourselves in the mirror if we don’t?

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