First time buyers say they are being frozen out of the market

First time buyer demand has weakened with rising house prices and many say they are currently frozen out of the market. With average house prices expected to fall next year by £26,550, a percentage of first-time buyers are choosing to wait to get on the property ladder. Many feel that by delaying their purchase, they will be able to make their money go further. The Office for Budget Responsibility predicts that higher mortgage rates and the economic downturn will cause a fall of 9 per cent by autumn 2024, wiping out the price increases of last 12 months.

What has brought about this situation?

In response to Liz Truss’s mini-budget, interest rates rocketed and are now over 6%, making mortgages hundreds of pounds more costly. The average two-year fixed rate mortgage last year was priced at just 2.25%. As lenders become increasingly wary about riskier lending to first-time buyers, many of the low deposit mortgages have been removed from the market, making it harder than ever to get on the property ladder. Mortgage brokers believe buyers with a 5 percent deposit will be completely locked out of the market by next year as banks and building societies shun first-time buyers. The number of deals available for this type of borrower has more than halved since the day before the mini-Budget, sinking from 298 to 129.

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In the mini-budget of September 2022, the Government increased the stamp duty threshold from £125,000 to £250,000. The threshold for first-time buyers was increased to £425,000 from £300,000. The tax relief threshold for first-time buyers was increased from £500,000 up to £625,000. These changes will all be reversed.

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Chancellor Jeremy Hunt said: “The OBR expects housing activity to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until March 31, 2025. After that, I will sunset the measure, creating an incentive to support the housing market and all the jobs associated with it by boosting transactions during the period the economy most needs it.”

How did first-time buyers feel about Jeremy Hunt’s budget?

Many first-time buyers reported being disappointed with the Chancellor’s statement and expected more help for first-time buyers, especially as the Help to Buy scheme has come to an end, removing what was a lifeline for many. Although other options such as Shared Ownership are still available, many do not qualify for this and need some changes to make it accessible. The Shared Ownership terms and conditions can be read here.

With the buying frenzy seen in the last few years now over, there is hope for a more normal market which will open up better opportunities for first-time buyers. This is good news for first-time borrowers who should be able to re-enter the market as house prices fall. They will also be able to keep costs low thanks to fixed fee conveyancing offered by many firms, such as Sam Conveyancing.

Andrew Montlake, managing director at broker Coreco, said: ‘After property prices boiled over, what we’re seeing now is the pandemic froth coming off. ‘During the last stamp duty cut, low supply and high demand lead to the increase in house prices. All of that is going to ease back off.’

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