First-time buyers in the UK are now having to stretch their mortgages further than ever. This movement signals the most profound change to the housing market. Over the 12 months leading up to September, the average loan amount for these first-time buyers reached an all-time high of £210,800. This achievement is great news for homeownership across the country. First-time buyers have flooded into the UK housing market, accounting for 20% of all cash spent over the past year. This represents the highest share of first-time buyers since at least 2007.
As more individuals and families enter the property market, the average age of first-time buyers has settled at 34 years. Interestingly, 31% of these buyers have children at the time they make their first purchase, indicating that many are prioritizing family needs alongside their housing aspirations.
Increasingly, first-time buyers are foregoing the standard single-family detached home. Rather, they are opting to buy homes rather than apartments. This move is part of a larger trend in buyer preferences, perhaps fueled by a need for space as households expand.
Lucian Cook, the head of residential research at Savills, highlighted that a significant factor behind this record borrowing trend is the “slightly more relaxed approach” adopted by lenders.
On the ground, mortgage lenders rarely deviate from stringent lending criteria. They cap loans at 4.5x a borrower’s income and they verify that a borrower can repay even in the event of rising interest rates. Notably, since March, stress testing rates have been increased by the majority of lenders. This change has enabled FTBs to increase their borrowing by an average £20,000 to £40,000.
The recent easing of mortgage rates has more recently added to this environment. The current average two-year fixed rate is 4.91%. At the same time, five-year fixed rates are standing at 4.86%. Both rates are the lowest since just before Liz Truss’s announcement of her mini-budget in September 2022. These two factors, lower borrowing costs and broader mortgage accessibility, have contributed to making homeownership more attainable.
In London this year, first-time buyers account for more than half of all property purchases. They are taking advantage of things such as the stamp duty holiday, enabling them to purchase homes worth up to £425,000 without paying any tax.
The Financial Conduct Authority has raised concerns regarding stress testing practices among some lenders, suggesting that they “may be unduly restricting access to otherwise affordable mortgages.” This caveat underscores how much barriers remain that may continue to push first-time buyers out even with more favorable lending markets.
Rightmove further observed that although house prices always fall in December, this year’s drop is more than usually severe. This trend will boost affordability for those trying to enter the housing market as prices improve with increased homeownership.
“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.” – Rightmove