This article was first published in Mortgage Finance Gazette

Getting into homeownership is a struggle for first-time buyers. Nothing new there, it’s never felt easy. 

But for today’s would-be homebuyers that struggle is becoming almost impossible to overcome, particularly for those not fortunate enough to have family who can provide financial support. 

At every turn, first-time buyers are impacted by affordability, and cumulatively this means the dream of homeownership can be nothing more than that for many, just a dream. But the longer-term impacts of moving to a generation of lifetime renters is just kicking the problem down the road, where it will have grown into an even bigger issue.

The key issues preventing today’s first-time buyers from getting on the property ladder are:

House Prices

In the last decade house prices have spiralled, with the latest Nationwide house price index showing they are still trending upwards. There are no signs of an impending house price reduction, as years of insufficient house building means the imbalance between supply and demand is keeping prices high. The new Chancellor has committed to increase the volume of new homes built each year, which we welcome, but time will tell how well they perform against this ambition. 

For first-time buyers, rising house prices not only increase the amount of deposit they need to accumulate but often the size of mortgage they need to borrow, with both getting further and further out of reach for many.

Interest Rates

Whilst house prices have been on an upward trajectory for the last decade, for most of that time interest rates were at their lowest ever level. This meant affording the monthly mortgage payment – for those who were able to put down the not insignificant deposit – was within reach for many. However, the sharp rise in interest rates since December 2021, which the Bank of England is holding higher for longer than most expected, means that affordability of mortgage payments is now a considerable obstacle to buying a home.

In the last BSA Property Tracker Report, the majority (63%) of those wishing to buy their own home said affording the mortgage payments was a barrier for them. 

Mortgage Availability

Building societies have a strong track record of providing innovative solutions for first-time buyers, with several creating products with features to assist their specific needs, such as no or very low deposit mortgages. However, whilst these products go some way to help some take a step onto the property ladder, lenders have the capacity and appetite to do more but are limited by the mortgage rules. 

A recent IMLA report noted that it would be beneficial for consumers if the Government established a framework for regulators, where the interests of future first-time buyers are explicitly recognised. They emphasise the need for a reassessment of affordability regulations with particular attention to the Financial Policy Committee’s Loan-to-Income (LTI) flow limit. This rule restricts lenders to offering no more than 15% of their mortgages at or above 4.5 times income, which IMLA notes is at odds with the rest of the affordability regime.  

Our own first-time buyer report, which came out in April highlighted that since the financial crisis, the balance between financial stability and supporting first-time buyers has swung too far towards a stricter regulatory environment with a negative impact on the social benefits of higher levels of homeownership. 

Consequences

A combination of the above factors has resulted in a significant decline in first-time buyer numbers, with no signs of that changing anytime soon. Two-thirds of would-be homebuyers think the deposit required to buy a home is now too high – not surprising considering the average deposit is now £60,000, a whopping 160% higher than the average £23,000 required in 2005. Wages have grown by less than half this amount in the same period.

So without radical interventions, the prospects for today’s – and tomorrow’s – first-time buyers are bleak. But even darker days could be coming their way. 

Standard Life recently published a report, which revealed those who rent into retirement could need an eye-watering £391,000 more in savings than those who own their home by the time they retire. 

If ever there is a statistic to show the societal consequences of not addressing the affordability issue facing our first-time homebuyers, for me that is it. How likely is it that an individual or family, who can’t save the £60,000 deposit needed to buy a home today, save an extra £400,000 to cover their home rental costs in retirement? Just to be crystal clear, that is £400,000 in addition to the retirement savings they will need for the general cost of living. 

First-time buyers have an unprecedented affordability issue today. Left unsolved they have an even bigger affordability issue coming down the tracks – at a time when opportunities for earning will be limited and their vulnerability increased.

As we have said before, action is needed. Will our new Government step up to the plate? We will certainly be there to help.