Research from the Mortgage Advice Bureau shows that while any lenders are cutting mortgage interest rates, this hasn’t yet translated to more activity in the housing market.
Ben Thompson from MAB said, “There are many challenges for prospective buyers to overcome before they get the keys in their hands, and right now, they’re coming from all sides. Economic volatility has seen prospective buyers battle high inflation, pushing prices up and limiting the amount they can save. Meanwhile, higher interest rates have lowered the amount they can borrow, meaning bigger deposits are needed. This has led to many prospective buyers having to put more away than they had initially planned.”
- What’s happening? Despite mortgage lenders cutting their rates (which means it could be cheaper for people to borrow money to buy a home), the housing market is still not performing well.
- Why the rate cuts? Mortgage lenders believe that the Bank of England won’t raise its base rate (or might not increase it by much). The recent reduction in inflation also made the market believe that the rates might stay lower for longer. This means there’s less pressure for them to charge higher rates on mortgages.
- How does this affect home buyers? Even though these rate cuts seem like good news, they haven’t significantly helped a lot of buyers. The main issue? It’s still really hard for people to save enough money for a deposit on a house.
- The bigger picture on deposits:
- First-time homebuyers think they need an average of £36,118 for a deposit.
- But because of recent economic challenges, 62% of these buyers now feel they’ll need an extra £11,500 on top of that.
- Result? 15% are delaying buying a house, and a third find saving for a deposit a major roadblock.
- Why is saving harder now? Prices have gone up due to inflation. Plus, with higher interest rates from before, people can’t borrow as much, so they need a bigger deposit. Here’s what that means:
- 25% of potential buyers feel they need to save more because borrowing has become costlier.
- 10% want to save more to reduce the amount they borrow (meaning they’d have a bigger stake in their property from the start).
- 8% are considering asking their parents for financial help (dubbed the “Bank of Mum and Dad”).
- Is there any good news? Yes! Those who are saving money can benefit from higher interest rates on their savings. There are also government programs like the Lifetime ISA and Help to Buy ISA that can boost savings for a mortgage. And, it’s always a good idea to chat with a mortgage broker – they can guide you on getting ready to buy a home.
- Sacrifices for the dream home: Many future buyers are cutting back on non-essentials to save. This includes spending less on social outings and luxuries.
In Simple Terms
Even though borrowing money for a house might be getting slightly cheaper due to lowered mortgage rates, saving for a deposit has become a bigger challenge for many. Economic ups and downs have made house prices increase and saving harder. However, there are some bright spots with helpful savings programs and opportunities to earn more from saved money.