First-time Buyers and the Struggle to Get on the Ladder

First-time buyers are finding it difficult to get their foot on the property ladder, with many struggling to buy their first property due to various obstacles.

First-time buyer struggles have heightened in the past month or so, but many are wondering whether residential property difficulties will worsen or improve in 2023.

Myerson Solicitors explore the obstacles that first-time buyers may face in the upcoming year.

What struggles are first-time buyers facing?

The primary struggles for first-time buyers include the following:

Increase in house prices

According to the Office for National Statistics, the average house price totalled £295,000 in November 2022, with the average salary totalling £33,000.

Based upon a 10% deposit, many first-time buyers looking to purchase an average property would have to save almost a year’s gross salary. A year’s salary is a great amount to save and a huge challenge for most, particularly due to the cost-of-living crisis and rising inflation, which, in October 2022, reached 11.1%.

In 2022, it was fair to say that the first-time buyer’s market was busy, being the next highest year from 2006; however, the property market was even more active in 2021.

Increase in mortgage rates

As of February 2023, the bank rate hit 4%; over the past few months, the bank rate has increased, and consequently, we have also seen an increase in mortgage interest rates.

The increase in mortgage interest rates has made it difficult, and sometimes unachievable, for first-time buyers to save for their deposit and mortgage payments. Interest rates have reached up to 6%.

Due to the increasing prices of mortgage rates and house prices, many first-time buyers are holding off from purchasing a home, so demand is dropping, which may result in a decrease in house prices.

However, prices are still high due to limited supply. Paired with progressively increasing rent costs, the battle to save for a deposit persists, with less money available to be put away for savings at the end of each month.

House supply remains low, with many homeowners putting off selling their homes due to the excessively high inflation rates as they wait for a more stable level of inflation before putting their houses back on the market.

In the past, first-time buyers were seen as attractive buyers as they are not part of a property chain, but due to difficulties acquiring a mortgage, first-time buyers may not be seen as desirable as they once were.

Stamp Duty Land Tax changes

On the other hand, some positive news was presented in September 2022 regarding Stamp Duty Land Tax. In the UK, first-time buyers already received some tax relief via stamp duty, but the threshold at which first-time buyers would need to pay their tax was increased per the increasing house costs.

If first-time buyers qualify for Stamp Duty relief, they will not have to pay Stamp Duty for their first property, provided the house cost does not exceed £425,000. If your property exceeds £425,000, the Stamp Duty is payable at 5% up to properties costing £625,000.

Rules vary for those looking to move home; however, there are still benefits as the nil-rate tax threshold at which the homeowner would need to pay tax has risen from £125,000 to £250,000.

In 2022, the first-time buyer’s market was busier than expected, given the house costs and mortgage difficulties, perhaps due to increased Stamp Duty Land Tax relief.

Buyers that had budgeted for higher Stamp Duty now may see themselves with more savings that can be put directly towards the deposit for their home.

What is to come in 2023?

Some predictions suggest 2023 may be a more difficult year for the property market than 2022. Many have speculated that house costs will drop in the upcoming year, which could dampen the spirits of first-time buyers and home sellers.

The mortgage market has also recognised the potential drop in house prices and will likely be less generous in lending higher loan-to-value ratios.

Mortgage lending criteria may also face sterner restrictions, making it harder for first-time buyers to secure a mortgage. However, dropping house prices could open the market up for first-time buyers as they may be able to get larger properties for their money.

Mortgage rates show no sign of slowing down; the bank rate is expected to increase within the first half of 2023.

The most recent Bank of England Credit Conditions Survey stated that lenders predict mortgage spreads to widen in the next three months, and wide spreads may encourage higher mortgage rates.

It is hard to accurately predict what 2023 has in store for first-time buyers, and many unanswered questions exist. Will first-time buyers only purchase a property once costs have dropped? Will first-time buyers be able to commit to or afford a mortgage as the cost-of-living crisis persists?