A new survey published by the Home Owners’ Alliance, revealed that First-Time Buyers are struggling more than ever to get on the property ladder.

The main obstacles for first-time buyers are the rise in house prices, saving for a deposit and concerns about their personal finances.

According to Zoopla data, average UK house prices have surged by more than £40,000, from £215,127 to £256,535, in the past 5 years – at an annual growth rate of 3.5%. In the same period, the average salary for full-time employees increased from £33,644 to £38,600 – at annual growth of 2.7%.

Despite Bank of England reports that the pandemic has enabled many households to accumulate more savings, in a study by Santander, less than one in five (17%) first-time buyers said lockdown enabled them to save more money for a deposit, compared to 31% of all buyer types. This inequality comes as younger buyers more harshly felt the effects of furlough, unemployment, and reduced income due to COVID-19, while many continued to grapple with the cost of renting. Nearly half (47%) of first-time buyers said they delayed their buying plans due to concerns about their personal finances.

Alongside this, over half (54%) believe that financial support for first-time buyers from the Bank of Mum and Dad will be less available post-pandemic. With parents having more financial pressures due to rising household costs and in some cases, redundancies, they may no longer be able to support their children in raising a deposit.  Estimates suggest that on average, the Bank of Mum and Dad provides more than £18,000 of financial support to a first-time buyer.  Currently, first-time buyers are having to scrape together a pot worth 70% of their income.

Higher Loan-to-Value (LTV) mortgage products like 95% mortgages, offer another route to homeownership for first-time buyers and those with smaller deposits. For those who are renting while trying to save a housing deposit, this path might help them to get on the property ladder slightly sooner. However, while this type of loan can make it easier for cash-strapped first-time buyers to take that difficult first step to becoming a homeowner, these deals are more expensive and higher risk.

When it comes to getting a mortgage, it is best to seek professional advice from a mortgage broker. This will help in making the best decision to suit personal circumstances.

There are a few important factors to consider before securing a 95% Loan-to-Value deal.

  • Higher interest rates– The higher the LTV ratio, the more interest you will pay on the loan. This is because you are borrowing a larger sum of the property’s value, you are deemed a higher ‘risk’ to lenders. Therefore, a 75% LTV mortgage deal will likely have lower interest than a 95% LTV
  • Remortgaging – Although not impossible, it can sometimes be more challenging to remortgage. This is because most mortgage lenders prefer homeowners to possess more equity. It might take a while for you to get your LTV down low enough for you to be eligible for the more competitive rates. If possible, overpaying on your mortgage can be an option to combat this as it will help get your LTV lower and reduce interest.
  • Negative equity– This is when your property is worth less than the mortgage secured on it. If the value of your home falls for any reason, there’s a chance you could end up in negative equity. The more equity you retain in your property, the less chance of this happening, however it’s important to recognise the value of a property can decrease for various reasons so you should always be aware of this.

 Some first-time buyers are choosing to live with their parents for longer to save enough for a deposit, whilst others are just having to rent for longer and curb their spending as much as possible to be able to save for a deposit.

Solutions for first-time buyers in getting on the property ladder

  • Swapping their preferred search area with areas they can afford
  • Buying with a friend/partner
  • Utilising home ownership schemes such as Help 2 Buy
  • Considering a long-term fixed rate to take advantage of the current low interest rates

With potential homeowners being priced out of property in their own areas and the deficit in growth between earnings and house prices only widening, it is evident that the UK property market needs to adapt and focus on finding new solutions to combat the current property landscape, to ensure more and more people can take their first steps onto the property ladder.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.