How can first-time buyers get ahead in the tough property market?
Property and mortgage experts offer their tips to cash-strapped would-be homeowners.
The affordability squeeze on potential first-time buyers appears to be dampening some people’s hopes of ever getting onto the property ladder.
A recent survey for Barclays found that less than a quarter (22%) of 18 to 34-year-olds believe that home ownership is a realistic goal.
Meanwhile, according to Santander’s customer data from the first quarter of 2024, a fifth of people taking their first step on the property ladder are aged over 40.
In signs that more people have already started families by the time they make it onto home ownership, one in five first-time buyers in 2023 had at least one dependant, up from 10% in 2009, Santander found.
David Hollingworth, associate director, communications at L&C Mortgages says: “Nothing seems to get easier for first-time buyers and the twin challenges of deposit and affordability remain.
“House prices have remained stubbornly high despite a slower market, which means saving a deposit and being able to borrow enough is tough.
“Nonetheless the demand from aspiring first-time buyers is still strong despite the higher interest rates now in play. Rents have risen rapidly as well and that coupled with limited security that renting gives means first-time buyers are still keen to take the first step onto the ladder.”
The mortgage market remains competitive, he says, with various deals aimed at giving first-time buyers a helping hand.
Skipton Building Society, for example, offers a “track record” mortgage, which uses borrowers’ rental history to help them onto the property ladder, lending up to 100% of the property purchase price.
Yorkshire Building Society also offers a £5,000 deposit mortgage.
Hollingworth says such deals could “accelerate the ability to buy for some that are struggling to amass a deposit whilst also paying stiff rents”.
When comparing mortgage deals, Hollingworth emphasises the importance of checking eligibility requirements. The Yorkshire’s deal, for example, is not available for flats or new-build houses.
He adds: “The majority of deals will require a minimum (deposit) of 5% and it’s still the case that a bigger deposit will help to broaden the range of options and the rates on offer.”
Parental help will still be a key contributor for many – and Hollingworth says that’s something lenders recognise.
Some mortgages, such as Barclays family springboard, offer up to 100% borrowing where a family member or friend is able to offer cash as additional security. With the Barclays deal, the money goes into a savings pot linked to the mortgage and is later returned, subject to terms and conditions.
“Many will also allow a parent to be joint on the mortgage to boost the amount of borrowing available without insisting on them being a joint owner,” adds Hollingworth.
Of course, many people do not have families who are in a position to offer financial support.
The Lifetime Isa is also an option for those looking to boost their savings for their first home, as it adds a bonus on pots of cash.
Barclays’ research also found that just under a fifth (19%) of young adults are worried that buying a home would mean their mortgage payments continuing into retirement.
Tim Bannister, Rightmove’s property expert says: “Stretching to a longer mortgage term will increase the overall cost of the mortgage due to higher interest payments, but for many, the reduction in monthly payments can be the difference between being able to afford the home that they want or not.”
According to recent figures from trade body UK Finance, around one in five (21%) new first-time buyers took out mortgage terms stretching beyond 35 years in the first quarter of this year.
Lenders carry out assessments to check borrowers can afford their mortgage, including if the home loan stretches into retirement.
While they can help make monthly payments more affordable, longer mortgage terms could potentially affect how much people are able to put towards other outgoings, such as pension pots.
Richard Donnell, executive director at Zoopla, says: “The big trend in recent years is to borrow for over 30 years to get that extra 5-10% of buying power but at the cost of paying more interest over the life of the loan.”
Donnell suggests that aspiring first-time buyers try to focus on seeking where they can get better value for money.
Some would-be buyers may initially rent in an area to get to know it, before buying locally.
Donnell says: “We have seen some increase in first-time buyers looking to buy flats in the face of higher mortgage costs but most first-time buyers still want to buy a three-bed house to do up and add value to.
“One big piece of advice is to speak to estate agents who know the local area well.
“The rise of online property searching means buyers aren’t tapping into the knowledge of property professionals. Agents can help with the ‘if you can’t afford here, people tend to look there’ on-the-ground insight.
“Building a rapport with an agent can help you to get ahead in your search and gain some great tips.”
Donnell also suggests making sure you have a mortgage lined up, so you know how much you can borrow before you start viewing properties.
Checking your credit score with the main ratings providers is also important step in getting mortgage-ready.
Some people may also want to consider the Experian Boost service, which allows people to share more information about how they manage their money, which may help to improve a credit score.
To make sure you’re getting the most bang for your buck when searching for homes, Donnell also suggests considering how much you’re paying on a “pounds per square foot or per square metre basis”, adding: “At the end of the day you are buying space.”
Emily Williams, director of research at property firm Savills, says people remain motivated to get on the property ladder.
She says: “Our latest survey of first-time buyers active in the new homes sector revealed that 75% said recent market conditions had led them to compromise on location, while 41% of first-time buyers said they had made a significant compromise on size.”
First-time buyers and existing home owners looking to remortgage also have the glimmer of hope that the Bank of England base rate will be cut at some point, which should ease some of the pressure of high mortgage rates.
Various first-time buyer pledges have also been made by political parties, as the General Election on July 4 looms.
“With an interest rate cut on the horizon, major lenders should be able to provide some relief to those looking to get onto the ladder,” says Williams.
