Are rising interest rates gentrifying the first-time buyer market?

Rising interest rates have caused the gentrification of the first-time buyer market, leaving only those with access to the Bank of Mum and Dad able to get on the property ladder, according to Leeds Building Society.

However, is this something industry professionals are seeing on the ground and how could prospective homeowners be better supported on to the housing ladder in a sustainable fashion?

What support do first-time buyers need?

David Robinson (pictured), co-founder at Wildcat Law, said that with rapidly rising rents, first-time buyers are caught between a rock and a hard place. Robinson believes first-time buyers cannot save enough for a deposit and buying costs, because so much of their income is going on rent.

“What we need is a modern Right to Buy; the government needs to look at a first-time buyer loan package that provides greater than 100% lending to value,” he said.

Using affordability calculations, Robinson said, would reduce the risk of future defaults, which in turn would level the housing playing field.

“We need to move away from the negative connotations of negative equity, and instead look at the possibility of homeownership for those who otherwise will always be caught in the rental trap,” he added.

Simon Bridgland, broker and director at Release Freedom, said that despite house prices holding up reasonably well, many first-time buyers are still priced out of the market.

“So, unless they have a mammoth sized deposit saved or, if lucky enough, gifted, then there is not much they can do to secure a home to build lives and families in,” he said.

Bridgland believes that much more work is needed in the Help to Buy sector, and said that the previous schemes have been a lifeline to those wanting to take steps into homeownership.

“Currently, I cannot see any real easing in the difficulty first-time buyers face, so unless financial
support is given via equity loans, they will continue to be forced to pay increasing rents in a reducing pool of rental property,” Bridgland added.

Is gifting deposits a necessity for first-time buyers?

Steven Hargreaves, mortgage and protection adviser at The Mortgage Co, has seen the Bank of Mum and Dad becoming much more prevalent in the last three to four years. Hargreaves added that gifting deposits has become almost a near necessity in today’s housing market, as property prices have risen so high.

While there have been support options for first-time buyers, such as the government-backed 95% mortgage scheme, Hargreaves said saving for a deposit has been a tough ask.

“We have also had some innovative products from lenders such as Skipton with their track record mortgage for first-time buyers in expensive rented accommodation; however with such expensive rents and property prices being so high, conditions have proved troublesome for prospective buyers,” he said.

Moving forward, Hargreaves would like to see some stability in the housing market, in terms of both property prices and interest rates.

Jamie Alexander, mortgage director at Alexander Southwell Mortgage Services, agreed with Hargreaves that the primary hurdle for first-time buyers is accumulating a sufficient deposit. However, Alexander added that this is nearly impossible to achieve while renting, unless the prospective buyer has family support.

“To bridge this gap between those with and without resources, the market needs meaningful price reductions and more deposit-boosting initiatives,” he said.

While education plays a role in dispelling the misconception that huge deposits are always necessary, Alexander said, a coordinated effort is needed to promote informed decision-making, emphasising the importance of consulting a mortgage broker before anything else.

Do you believe that rising interest rates are gentrifying the first-time buyer market? Let us know in the comment section below.