The price of a typical first-time buyer home has risen three times faster in the past two years than it did in the two years before the pandemic, new research from Rightmove has found.
Rents have also risen at sky-high rates, rising 17 per cent or £128 a month since the start of the Coronavirus crisis, the property portal found.
Median sales prices for first-time buyer homes, which Rightmove defines as those with two bedrooms or less, are at a record £224,943 across the UK.
This is 13% higher than two years ago, and a much higher increase than the 4% seen between 2018 and 2020.
Rising rents: Rising rental costs are putting additional financial pressure on prospective first-time homebuyers trying to save for a deposit, experts have warned.
Experts warn that putting together a deposit is becoming more difficult for prospective first-time homebuyers, especially as rising rental prices hit their spending and limit how much they can save.
The average 10 per cent deposit for a first-time home has risen by £2,560 in the past two years to £22,493, compared with a jump of £807 between July 2018 and July 2020, Rightmove said.
Tim Bannister, Data Expert at Rightmove, comments: “For prospective first-time buyers who are trying to save a deposit, they’re chasing a fast-moving target, as median sales prices for first-time buyer homes they reach another new record and increase faster than before the pandemic.
“For those who can’t live with their parents or relatives while saving, they also have to pay record rents both inside and outside London.
“Something we’ve seen more of in recent years, particularly as working from home becomes more common, is people looking further afield or in a greater number of different areas when looking to move, to see what’s available within. of your budget. .’
Chris Sykes, CTO at mortgage specialist Private Finance, blames a lack of housing supply for rising prices, as well as a “reluctance among second climbers to move further up the housing ladder.”
This reluctance is due in part to the cost of living crisis and current economic uncertainty.
Increases in moving costs, such as attorney fees, are also having an impact on this group of homeowners, Sykes says.
Last week it was revealed that average legal fees increased by 11 per cent or £140 in the last 12 months, from £1,273 to £1,413.
Despite these pressures, Rightmove found that there are now 35 percent more people inquiring about first-time buyer homes than in 2019.
This compares to a 26 percent increase across all property types.
David Hollingworth, of mortgage broker L&C, suggests those saving for their first deposit could take advantage of the Lifetime Isa scheme, which offers a 25 per cent bonus on up to £4,000 of savings every year.
“However, it looks like the Bank of Mum and Dad will likely continue to be an important part of making many aspiring first-time homebuyers’ dreams come true,” he adds.
Rising Mortgage Rates
Those who can afford to buy also face rising mortgage rates as interest rates drive up the monthly cost.
Based on current average rates, the average monthly mortgage payment for a new first-time buyer is £976, £173 more than two years ago. Average monthly mortgage payments increased by just £41 between 2018 and 2020.
Bannister advises first-time buyers to look into fixed-rate products to protect against future rate increases.
Staying where you are: Experts suggest that first-time homeowners are reluctant to move up the property ladder due to economic pressures, exacerbating the housing shortage for new buyers.
One way buyers can lower their monthly payments is by taking a longer mortgage term than the standard 25 to 30 years, although this will increase the interest they pay overall.
It’s also a problem for first-time homebuyers over the age of 40, as many banks stipulate that mortgages must be paid off before age 70.
“One tool many first-time homebuyers use to increase affordability is to stretch the mortgage term as far as it can go, but the longer it is, the less the term can be stretched and perhaps the less you can borrow,” says Sykes.
Another new development in the mortgage market is an increasing number of lower deposit loans for those buying new construction homes.
Traditionally, lenders would ask for a 15 percent deposit, but now there are options available with deposits as small as 5 percent.
“Although there is a good range of 95 percent mortgage options in the broader market, lenders often require a higher down payment for new construction, especially condos,” Hollingworth says.
He added that mortgage lenders have to “find the right balance, helping first-time homebuyers climb the ladder effortlessly to the point where they may find the mortgage unaffordable.”
The best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.
If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.
Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.
You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.
Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.
> Compare the best mortgage deals available now
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