The dream of homeownership is becoming increasingly elusive for first-time buyers in the UK, who are now facing the most challenging housing market in nearly 70 years. This daunting situation has prompted calls for significant changes from the finance industry, particularly building societies, who see an urgent need for radical solutions to reverse the downward spiral of accessible homeownership.

The Rising Costs of Home Buying

A recent study by the Building Societies Association (BSA) reveals that becoming a homeowner is not just difficult—it’s historically expensive. The typical first-time buyer now needs an average deposit of £60,000 across the UK, with stark regional differences ranging from £27,000 in the North East to a staggering £144,000 in London. This financial barrier has substantially increased reliance on family support, commonly referred to as the “Bank of Mum and Dad,” and necessitates dual-income households well above the national average.

Even for those who manage to scrape together the deposit, the challenges don’t end there. Rising interest rates have dramatically increased the monthly financial burden on new homeowners. Data from UK Finance highlighted by the BSA shows that the average mortgage rate for first-time buyers has more than doubled from 2.2% in March 2022 to 5.6% in November 2023. Consequently, the portion of gross income spent on mortgage repayments has surged from 16.8% to 22.5% over the same period, squeezing budgets and making the goal of homeownership less attainable.

Advocated Solutions

Rethinking Mortgage Limits

One of the pivotal changes advocated by the BSA involves reevaluating the cap on high-ratio mortgages. Currently, there’s a regulatory limit that only 15% of all home loans can exceed 4.5 times a buyer’s salary. The BSA suggests this cap should be relaxed for first-time buyers to help more of them secure financing for their homes.

Transforming Property Taxes

The call for change extends to property taxation. The BSA proposes replacing the current stamp duty, which is seen as a barrier for first-time buyers, with a new tax regime focused on aiding them directly and encouraging more efficient use of housing.

Overhauling Planning Rules

Further, there’s a strong push to modify planning laws to boost the supply of both existing and new homes. This includes increasing the delivery of affordable homes, which could help address the current imbalance in housing availability versus demand.

Voices from the Industry

Paul Broadhead, head of mortgage and housing policy at the BSA, emphasised the need for new approaches to revitalise a faltering housing market, stating, “A properly functioning housing market is dependent on first-time buyers being able to afford their first home… new thinking and radical changes are needed.”

Rachael Sinclair, Director of Mortgages and Financial Wellbeing at Nationwide, echoes this sentiment. She highlights the ongoing difficulty of entering the housing market, noting that a significant number of potential homeowners don’t see themselves buying a home until their forties. She stresses the importance of collaboration among various stakeholders to address these challenges effectively.

A Collaborative Effort Required

As the situation stands, first-time buyers are cornered by high costs, restrictive mortgage practices, and insufficient housing supply. Addressing this crisis will require a concerted effort from all sides—government, industry leaders, and communities—to implement the profound changes needed to make homeownership a feasible goal for the next generation. The call is clear: without radical intervention, the dream of owning a home will remain just that for many—a dream.