Data unveils the record lengths first-time buyers go to get a leg up the property ladder
While record-high property prices have done little to dampen first-time buyers’ desire to step onto the property ladder, they have lengthened the average mortgage term they take on, a new study finds.
The average price of a first-time buyer home has now reached a historical high at £224,963, as a result of longer mortgage terms.
Land tax advisor and property expert Cornerstone has published a study highlighting the continued desire of first-time buyers to own property.
The study revealed that one in three (32%) of those surveyed considered buying property their main investment goal – a finding that coincided with the 2% year-on-year growth in first-time homeowner purchases recently recorded by Rightmove.
The average asking price of a first-time buyer property stood at its highest-ever recorded price at £224,963, and sale agreements to first-time buyers were 4% higher than they were pre-pandemic. Meanwhile, the average rate of a first-time buyer's five-year fixed mortgage with a 15% deposit had fallen to less than 5%.
Consistent with Cornerstone data, the newest numbers crunched by UK Finance revealed that the volume of new homes purchased by first-time buyers with a mortgage life over 35 years had more than doubled, accounting for 18% of all new home purchases in February 2023 compared to the 8% recorded the same time last year, despite the odds stacked against aspiring homeowners.
The new strategy of ultra-long mortgage terms would appear to reduce the buyers’ monthly repayments while allowing buyers to get a leg up the property ladder. In truth, however, the additional years to a mortgage term would only set up buyers up for much heavier total payments by way of additional interest.
For example, mortgage advisory firm Private Finance showed that if a first-time buyer were to borrow £450,000 over a 25-year term at a 4.5% interest rate and £999 fee, they would pay back £751,000 over the span of their mortgage loan.
If they were to opt for a 40-year mortgage, however, they would end up paying back £972,000, or £221,000 more than they would have needed to spend on the shorter-term mortgage.
“[While our] data showing the clear desire from young people in the UK to invest in property is inspiring to see,” said Cornerstone group chair David Hannah, “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.”
Cornerstone said the elevated asking price for first-time buyer property as well as the uptick in first-time buyer demand had resulted in the reduction of the demand and supply imbalance.
“We’ve seen a surge in building costs and building materials which is slowing down construction and worsening the issue of supply and demand,” Hannah said. “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.”
