First-time buyers are paying significantly more on mortgage payments than they were five years ago, despite home loan costs falling in recent months.
Higher interest rates mean mortgage payments for those on the first run of the propery ladder remain 61 per cent higher than in 2019 on average, according to Rightmove.
The typical first-time buyer now pays £931 on monthly mortgage repayments compared to £578 in 2019, the property portal revealed, equating to more than £350 extra each month.
More expensive: The average monthly mortgage payment for a first-time buyer is up by 61 per cent compared with five years ago
Rightmove’s calculations are based on a first-time buyer being able to put down a 20 per cent and spreading the cost of the mortgage over 30 years, on a home which has two-bedrooms or fewer.
The typical five-year fixed mortgage rate that most first-time buyers could expect with a 20 per cent deposit is now 4.58 per cent, according to the property portal. This compares to just 2.13 per cent in 2019.
The typical first-time buyer home in Britain of two-bedrooms or fewer has also increased by 18 per cent over the past five years, rising from £192,221 to £227,570 meaning that on top of higher rates they also need a bigger mortgage.
How are first-time buyers coping?
In reality, many first-time buyers will be earning more than those buying five years ago.
In the five years between July 2019 and July 2024, average earnings have increased by around 28 per cent.
Even so, the cost of living has also increased by a large amount. The cost of the average basket of goods and services has increased at a similar rate thanks to the spike in inflation in 2022 and 2023.
This means first-time buyers are relying on various coping mechanisms to afford their way onto the property ladder.
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For a start, first-time buyers are waiting longer to buy a home and spreading the cost of their mortgage out for longer.
The average age of a first-time buyer is now 33 compared with 32 in 2019, while the average mortgage term for a first-time buyer is now 31 years, compared with 29 years in 2019, based on UK Finance data.
In fact, the trade association said more than one in five took out mortgages with terms of between 36 and 40 years in the three months between April and June this year.
Where are first-time buyers facing the biggest mortgage uplift?
In London, a typical starter home is now nearly five times the average annual salary of two people, the most of any region.
This means that many first-time buyers may struggle to borrow enough to afford the home that they want, with lenders typically able to mortgage up to 4.5 times a combined income.
Those looking to purchase on their own would find it even more difficult.
Despite this, first-time buyers in the capital are having to stump up 44 per cent more on mortgage payments than those who bought five years ago. The smallest increase of any region.
In the North West, the average monthly mortgage payment is up by 75 per cent compared with five years ago.
This is because on top of higher interest rates, house prices have increased to a greater extent in the North West, with the average asking price for a home up by 29 per cent over the past five years, the highest increase of any region.
In Wales, average mortgage payments are also up 75 per cent while in Yorkshire and The Humber, the average monthly mortgage payment is up by 74 per cent compared with five years ago.
Regional first-time buyer trends: In the North West, the average monthly mortgage payment is up by 75 per cent compared with five years ago while in London it is up 44 per cent
Tim Bannister, a property expert at Rightmove said: ‘The improving market conditions compared with last year have led to a recovery in activity in the typical first-time buyer sector.
‘We’re seeing more choice in this sector for would-be first-time buyers, and more potential buyers contacting agents versus last year.
‘However, mortgage rates, while improved from the peak, are still high against recent norms.
‘This has led to first-time buyers taking out longer terms, waiting longer to build up their deposit, and looking at cheaper areas to get onto the ladder.
‘First-time buyer affordability remains stretched and any support that can help more to get onto the ladder would be welcome.’
It’s not all bad for first-time buyers
There is some good news for first-time buyers however.
First, there is plenty of stock on the market – at the end of August, Zoopla reported the number of homes for sale has risen to a seven-year high, according to Zoopla – with the average estate agent having 33 homes to sell.
With more homes to choose from, they also currently have fewer buy-to-let investors to compete with. Meanwhile, upsizers and downsizers are also hesitant to move, according to experts.
The proportion of homes being bought by landlords fell to a 14-year low during the first half of this year, according to Hamptons.
The estate agent revealed that only one in ten homes sold during the first half of this year went to a buy-to-let investor. This was the lowest share since its records began in 2010.
A glut of homes and less competition should give some first-time buyers an advantage when it comes to negotiating a better price.
Nicholas Mendes, mortgage technical manager at broker John Charcol said: ‘Buy-to-let landlords are either selling their properties or holding off on purchasing more, especially with the upcoming budget unlikely to be favourable for them.
‘First-time buyers, on the other hand, are in a fortunate position. There is less competition as homeowners delay moving, buy to let landlords are not actively competing for properties, prices are just beginning to see an uptick, and mortgage rates, for the most part, have been on a downward trend. Expect we’re going to see another busy few weeks.’
George Smith, a mortgage broker at LDN Finance, says he is seeing a similar story playing out.
‘We are seeing a lot more stock of properties on the market and a lot of them seem to be chain free with second homeowners and investors looking to offload before potential changes to capital gains and the like in the upcoming budget,’ said Smith.
First time buyers are therefore even more attractive buyers with quick transactions the flavour of the month.’
It is also becoming increasingly possible for first-time buyers to borrow more than 4.5 times their income with certain lenders.
In September, Nationwide announced it was giving first-time buyers the ability to borrow six times income, even to those with a deposit of 5 per cent.
This means couples earning £50,000 to borrow £300,000 towards their first home, which is roughly £75,000 more than standard lending.
It followed on from Halifax, which announced at the start of September that it had made £2billion available for first-time buyers who need to borrow up to 5.5 times their annual income.
To be eligible for what Halifax is calling its ‘First-time buyer boost,’ buyers need a total household income of £50,000 or more, which will need to come from employment.
They also need to be purchasing a property with a deposit of at least 10 per cent.
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