The impact of this has been felt across the UK housing market, where first-time buyers now account for around 48% of all purchases, a record high. Over the last year, that has represented 20% of all federal spending within the housing sector. By September the typical mortgage taken out by first-time buyers had hit an all-time high of £210,800. This alarming national trend is a symptom of the growing reality of home ownership in the country.
Typically, first-time buyers are about 34 years old on average. Surprisingly, one-third of them are already parents by the time they enter the property market. Their demands have fueled a wave of borrowing. Increasingly, people are opting for bigger households and new flats with multiple bedrooms. This decision is a testament to their evolving priorities, influenced by the needs of their growing families.
The stamp duty holiday was an important act in swinging first-time buyers into taking the plunge on a big buy. Under this plan, home buyers don’t pay any tax on the first £425,000 of a property value. This allowance motivated thousands to chase after bigger properties. In practice, it meant that it made up more than 50% of all purchases in London so far this year.
For mortgage lenders, the limit is usually set at 4.5 times a borrower’s income. Recent adjustments in stress testing, where lenders assess borrowers’ ability to afford repayments amid rising interest rates, have led to changes in lending practices. Following comments from the Financial Conduct Authority (FCA), many lenders have reduced the interest rate at which they conduct these stress tests. This saving enables first-time buyers to borrow between £20,000 and £40,000 more than they currently can on average.
Lucian Cook, head of residential research at Savills, noted that lenders have been more forgiving. This change has contributed significantly to making record borrowing levels possible. He emphasized that “home ownership is more accessible now than at any point in the last three years, thanks to lower borrowing costs, lower real house prices, and more accessible mortgage debt.”
The FCA has raised concerns that the traditional methods used for stress testing might be “unduly restricting access to otherwise affordable mortgages.” This highlights a complex balance between ensuring borrowers can meet their obligations and enabling access to home ownership for those who qualify.
In reality, the overall landscape for first-time buyers has undergone an incredible shift in recent years. Favorable borrowing conditions coupled with policy incentives are converging to form a perfect stimulus for home buying. Accordingly, now is a better time than ever to buy a home.