How have first-time buyers been impacted since the 2019 election?
A recent study reveals a significant increase in mortgage payments for first-time buyers, which have risen by 61% since the election year of 2019. Over the past five years, the average monthly mortgage payment for a typical first-time buyer home has surged from £667 to £1,075. This results from elevated mortgage rates, which have remained high over this period.
Wage growth lags behind
Significantly, this rise in mortgage payments has outpaced wage growth, which saw an increase of only 27% over the same five-year span. The mortgage payment calculations assume that first-time buyers take out a five-year fixed mortgage, spread over 25 years, at an 80% Loan-To-Value (LTV) ratio. According to UK Finance data, an 80% LTV mortgage is standard practice for first-time buyers.
Mortgage rate increases
The average rate for five-year fixed, 80% LTV mortgages has climbed from 2.24% in 2019 to 5.09%. Meanwhile, the average first-time buyer home cost has risen to £227,757, reflecting a 19% increase since 2019. However, this average masks significant regional variations.
Regional price variations
The North West experienced the most significant jump in first-time buyer prices at a regional level, with a 33% increase since 2019. Conversely, London recorded the smallest rise, with prices growing by just 6% over five years. This trend is evident in local data, where 16 out of the top 20 areas with the highest increases in first-time buyer prices are located in the North West and Wales.
Top of the price rises
Bolsover in the West Midlands tops the list, with a staggering 55% increase in average asking prices. The study underscores the impact of rising mortgage rates on first-time buyer affordability. Many commentators suggest that a Bank of England rate cut could offer immediate relief to those trying to get onto the property ladder, as it likely leads to lower mortgage rates.
Coping strategies for buyers
With rates surging over the past five years, the typical first-time buyer’s monthly mortgage payments have outstripped wage growth. As a result, some first-time buyers are extending their mortgage terms to 30 or 35 years to reduce their monthly payments. Others are looking at cheaper homes to minimise borrowing.
Potential benefits of rate cuts
If mortgage rates were to decrease, it would provide substantial short-term relief for first-time buyers, more so than any housing promises made during elections. These potential reductions could make homeownership more accessible for many aspiring buyers.
Time to discuss your options with a professional mortgage adviser?
If you require additional information or guidance on navigating the complexities of first-time buyer mortgages, please do not hesitate to contact us. We’ll explain your options to help you make informed decisions and secure a more manageable path to homeownership. Speak to the Henry Dannell team today.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
