rising house prices hitting first-time buyers

The latest Rightmove house price index points to a market that’s far from slowing down. Indeed, May saw the price of property coming to market hit a fourth consecutive record of £367,501, up by 2.1 per cent on a monthly basis and putting prices £55,000 higher than pre-pandemic. Astonishingly, given the impact of the global pandemic on all aspects of our lives, the housing market has continued to go from strength to strength with few signs of slowdown.

There are two caveats to bear in mind here – one is that these are asking prices rather than sold prices and there have been plenty of tales of vendors putting prices up safe in the knowledge that there is more competition from buyers than there is property for sale. Secondly, other surveys suggest a slowdown in price growth – the latest UK HPI index, for example, showed annual growth of 9.8 per cent in the year to March, a slight slowdown from the 11.3 per cent growth seen in the year to February.

Also, with inflation rising to 9 per cent, its highest level in 40 years, it is likely that the growing cost of living crisis and rising mortgage rates will have a negative impact on the housing market at some point. Even Rightmove concurs that while activity levels remain strong and significantly higher than pre-pandemic, ‘there are signs that the frenetic market is starting to ease’.

rent prices continuing to rise

However, this will come as small comfort for first-time buyers in particular who are finding that they need to come up with ever bigger deposits in line with price rises. Solo first-time buyers now have to find a 34 per cent deposit compared with a 25 per cent deposit ten years ago, says Rightmove. On an average asking price of £367,501, that’s an incredible £124,950. They can be forgiven for thinking that the market feels as though it’s getting even further beyond their reach, although it is worth noting that after four consecutive interest rate rises, average monthly mortgage payments are back to being higher than rental payments. Yet that doesn’t mean rents are falling by any means – first-time buyers are trying to save for a deposit to buy for a home at the same time as paying rents which are 40 per cent higher than they were ten years ago, while thanks to low interest rates, mortgage payments are only 11 per cent higher than a decade ago. Indeed, rents are rising at the fastest pace that Rightmove has ever recorded.

While first-time buyers may well have struggled to save up a deposit and be attempting to take out the biggest mortgage possible, there are other buyers who are able to stretch themselves further if needs be, who can access that bigger mortgage and perhaps have savings built up during the pandemic that they can put towards their purchase. As long as these buyers are prepared to push themselves to secure their dream home, and the lack of stock continues, prices will continue to rise.

The biggest issue for first-time buyers is not so much affording the mortgage but drumming up the necessary deposit. Average monthly mortgage payments for a first-time buyer have remained relatively stable over time due to low interest rates but a first-time buyer on an average salary looking to buy an average first-time buyer home, now needs a deposit 112 per cent higher than a decade ago.

However, there may be a surprising silver lining on the horizon in the form of rising interest rates. MT Finance has long called for a reform of stamp duty so that older downsizers do not have to pay it, encouraging them to move to a smaller property. This would free up some much-needed family homes for those moving up the ladder. However, as mortgage rates increase along with the cost of living, we may well find that this has the same effect, with some homeowners potentially looking to downsize in the near future. This would enable them to get as much as possible for their property before prices dip again, enabling them to bank the equity to boost their savings and to help cover rising costs. A smaller property would not only be more manageable in terms of maintenance but would also be cheaper to run/heat.

how MT Finance can help

With the latest Bridging Trends survey revealing that bridging rates fell to an historical low of 0.71 per cent in Q1 2022, down from 0.77 per cent in Q4 2021, the appeal of short-term finance is growing. Buyers – particularly investors and landlords – who need to move quickly in order to beat the stiff competition for property and can’t wait for a standard mortgage application to be approved will find that a bridging loan from MT Finance will be fast, flexible and as stress-free as possible.

If you’d like to find out more about how a bridging loan from us could help facilitate an urgent property purchase, get in touch by calling us on 0203 051 2331, emailing or by filling in our online contact form.

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