It is no secret that being a first time buyer and achieving home ownership in the UK is more difficult than it once was. In the past property prices were cheaper, mortgage lenders were more generous with their affordability checks, and 100% mortgages were commonplace meaning that first time buyers didn’t necessarily need to save a large deposit contribution. However, it wasn’t all good.
The Property Market Past and Present For First Time Buyers
We are currently going through a period of mortgage rate rises that we haven’t seen in decades. But they are still much lower than they once were. My own parents bought their first house at barely 20 years old with an interest rate of a whopping 11%. Their house was only worth about £40,000 at the time. So with average house prices in the UK reaching nearly £300,000 now and interest rates creeping up to 6% or more, first time buyers are being pushed further and further away from the property ladder.
Deposit sizes are also a huge deterrent for many prospective first time buyers in 2023. As previously mentioned, a 100% mortgage (no deposit needed) was not uncommon in the past and this meant that a lot of new buyers didn’t need to try and save enough deposit to purchase a property. Instead they could simply get a loan to purchase the home and then pay this back.
Nowadays borrowers need to put down a minimum of 5% deposit with most lenders requiring larger deposits and incentivising lower rates and better affordability for people who can provide larger deposits. That means that new buyers today purchasing an average property at around £285,000 would need to put down a £14,250 deposit at least. Something that is becoming more and more difficult to do as the cost of living increases and disposable income severely contracts.
Average Mortgage Payments For First Time Buyers
Rightmove recently reported it’s findings after conducting some research in to the current state of first time purchasers in the UK market. Rightmove revealed that the average monthly mortgage payment for a first-time buyer with a five-year fixed mortgage and a 15% deposit is now at £1,148 per month. This is an increase of £20 per month compared to the same scenario measured the previous week. And this is likely to increase again in the coming weeks and months.
They also reported that the average monthly mortgage payment for a first-time buyer with a 40% deposit is now at £786 per month. This is up by £17 per month compared to last week, illustrating our point that larger deposit mortgages are being incentivised by lenders by offering lower rates. Rightmove also report that the average purchase price for a first time buyer is around £226,000.
Homes Now Cost Over 10 Times The Average Salary
More recent research shows that the average property price in the UK is now 10.6 times the average salary. When lenders offer a maximum of 5.5X salary mortgages, this means that first time buyers with starting salaries in particular are being penalised and are finding it more difficult to purchase a suitable property. The average salary in the UK is increasing which is good news, and it is increasing quicker than house prices are inflating. However a salary of around £30,000 (the average in the UK) is still much lower than a first time buyer needs to be earning to purchase an average property without a large £90,000+ deposit.
How Can First Time Buyers Purchase Without Breaking the Bank?
Now that is a tough question. How do first time buyers still purchase in 2023? Well the important thing to know is that first time buyers are still buying, and with the help of a mortgage advisor, it can be much easier than it may look based on the facts we’ve been through today. Of course if you are lucky to earn above the average salary in the UK, you will find it much easier to get a larger mortgage loan. Especially if you are purchasing with someone else who also earns a good salary. If you want to know how much you can afford based on your income, your mortgage advisor can help with this and go through an affordability check with you for free. Likewise, if you are lucky enough to have a large deposit available to you, this will help massively too.
If you are struggling with your earnings and deposit, you may want to consider things like shared ownership as a way of purchasing your first home. Shared ownership is becoming more and more popular, especially in expensive areas like London. Shared ownership can allow you to purchase a property at a lower purchase price, meaning you will need a smaller deposit and a smaller mortgage loan. Learn more about shared ownership.
Speak To a Mortgage Advisor Today
At Oportfolio mortgages we are still helping lots of first time buyers to get their foot on to the property ladder, even in times when getting your first property might seem impossible. Read our First-Time Home Buyer Questions To Ask A Mortgage Broker or contact our Putney mortgage team today to see how we can help you make your dream of home ownership a reality.