First-time buyers’ desire to step onto the property ladder remains high, despite facing record property prices
Cornerstone Tax: First-time buyers’ desire to step onto the property ladder remains high, despite facing record property prices.
New data from UK Finance shows that first-time buyers are using ultra-long mortgage terms in order to get on the property ladder. The number of new homes purchased by first-time buyers with a mortgage term above 35 years has more than doubled, in a move to reduce homeowners’ monthly repayments.
These types of mortgages accounted for 18% of all new homes purchased in February 2023 versus just 8% a year earlier according to UK Finance.
However, by adding years to their mortgage terms, buyers are set to pay significantly more in additional interest payments.
Private Finance shows that if a first-time buyer was to borrow £450,000 over a 25-year term with a 4.5% interest rate and £999 fee, they would pay back £751,000 over the course of the mortgage. If they were to extend the length to a 40-year mortgage they would pay back £972,000 – £221,000 more than the shorter term mortgage.
A new landmark study from property experts, Cornerstone Tax highlights the continued desire from first-time buyers to step onto the property ladder, as 32% of Brits now say that buying property is their main investment goal.
This comes amidst Rightmove’s data that shows that houses bought by first-time buyers witnessed a 2% growth over the year, meaning that the average asking price of a first-time buyer property now stands at a record £224,963.
Agreed sales to first-time buyers are now 4% higher than in March 2019 as the average rate of a first-time buyer’s 5-year fixed mortgage deal with a 15% deposit has now fallen to 4.46%.
This has resulted in the reduction of the demand and supply imbalance as more stock becomes available for buyers. Estate agents have reported that there were 35 homes for sale per branch in March. This was the highest number of homes for sale per branch since January 2021 – a year ago, there were just 20.
This has encouraged a wave of buyers back to the market, resulting in an increase in the number of sales agreed – with numbers reflecting pre-pandemic levels in 2019.
David Hannah, Group Chairman of Cornerstone Tax, explains:
“Our data showing the clear desire from young people in the UK to invest in property is inspiring to see. However, I do believe that more measures need to be introduced to aid first-time buyers when looking to step onto the property ladder.
“We are seeing a new level of unaffordable house prices in the UK property market, and the property market is now becoming increasingly difficult to enter for first-time buyers.
“Even though the average price of a property has predominantly fallen over the past few months, the increase in mortgage rates and the decrease in availability of mortgages are significant problems.
“We all know the challenges the UK’s property market is currently navigating – inflation and rising interest rates are causing a whole raft of issues.
“We’ve seen a surge in building costs and building materials which is slowing down construction and worsening the issue of supply and demand.
“However, recent data from Rightmove showing that the average estate agent currently has 35 homes for sale compared to 20 last year shows signs that supply is increasing.
“Despite rising interest rates, I still see the main obstacle for first-time buyers being the ability to save enough money for a deposit and covering all of the added costs involved in purchasing a property as our data shows.”
Kindly shared by Cornerstone Tax
Main article photo courtesy of Pixabay
