Predicaments for first time buyers

Recent reports on first-time buyers are suggesting that they are struggling the most within the property market. After the Brexit vote impacted mortgages for first time buyers, recent figures also show that they are not fully prepared for the cost of buying their first home, meaning that they are facing higher prices with fewer mortgage choices and fewer property choices.

Summer 2016 caused problems for first-time buyers, as June saw the average price of a first-time buyer home reach £161,912 which meant that the need for high loan to value (LTV) mortgages is increasing. August saw the number of available mortgages for individuals with a 5% deposit drop from 243 to 238 and was the only LTV bracket to fall month-on-month.

September is the second month in a row to see the amount of 95% LTV mortgages decrease following the UK vote for Brexit. In contrast, the number of available products for individuals with larger deposits grew month on month. Mortgages for owners of 20% mortgage deposits increased the most by 10, from 597 in July to 607 in August.

Overall, 95% LTV mortgage lending accounted for only 2.5% of total mortgage lending in the first quarter of 2016, down from 3% the previous quarter and down from 3.5% year on year. This highlights a declining trend in lending to individuals with small deposits.

In addition to this, research from Barratt Homes has found that 77% of first-time house buyers are forced to make a compromise on the quality of their property, even though the majority will be paying considerably more than the amount they planned to pay.

Barratt Homes surveyed more than 2000 prospective and first-time home owner’s shows that commonly buyers are paying on average £222,000 instead of the £210,000 they expected paying. The areas where most buyers had to compromise to enable the purchase of their first home included house size, garden size and location, which were also cited as the most important factors when selecting a home.

28% of prospective buyers would sacrifice location, 1/6 had to opt for one less bedroom than planned, and the same number of people had to buy a smaller property with one less property for the opportunity to buy their first home.

In reality, buyers who had purchased their first home in the past five years behaved differently, with 36% surrendering the size of the garden, 23% sacrificing the availability of off-road parking and only 23% said that they didn’t have to compromise. 17% felt that they had compromised on the wrong factor.

However, making a compromise may not be a detrimental decision, as the research found that first time buyers are spending longer in their first homes than was originally planned, only half of those who planned to stay for less than a year actually did, whereas 71% of home buyers stayed for four or more years. It was also shown from the research that many people don’t feel the need to make any changes to their new property, with almost one in four doing nothing to their first home after moving in.

There is also good news for first-time buyers trying to get on the property ladder, regarding mortgages, as mortgage rates have fallen to new lows. For those with a 5% deposit, the lower mortgage interest rates mean it is possible to save £40 per month, compared to what they would have paid for an average first-time buyer loan a year ago.

As experienced conveyancers we’ll discuss each of the steps to be undertaken when buying your home, so you can have all the information you need to make the best-informed decisions.