Despite soaring interest rates and a wobbly housing market, first-time buyers are refusing to give up on their dreams of owning a home. New figures show they are adapting to the tough conditions and snapping up properties, proving their resilience in the face of economic uncertainty.
Over the past couple of years, anyone looking to buy or sell a property has faced a rollercoaster ride of falling house prices, fewer homes being bought and sold, and eye-watering increases to interest rates. This has made it much harder to get a mortgage, especially for those trying to get on the property ladder for the first time.
But there’s good news! Despite these challenges, the number of first-time buyers (FTBs) has remained surprisingly steady in 2024, Savills reports. In fact, they are outperforming other types of buyers, like those moving house or buying to let.
First-Time Buyers Weather the Storm Better Than Others
Back in April 2023, the number of FTBs had plummeted by 30% compared to pre-pandemic levels (2017-19 average). But fast forward to April 2024, and this figure has bounced back to just an 11% decrease. This is a much stronger recovery than seen with other buyer types:
- Home movers were down 24% in April 2024 compared to 2017-19 levels.
- Buy-to-let purchases also saw a 24% drop in the same period.
Interestingly, while the proportion of the market taken up by FTBs has held steady at around 29%, cash buyers seem to be taking advantage of the current climate – their share of the market has actually grown.
So, how are first-time buyers managing to stay afloat?
It seems FTBs are a resourceful bunch, adapting to the tough conditions in a number of ways:
- Longer mortgage terms: To keep monthly payments manageable despite high interest rates, FTBs are opting for longer mortgage terms. UK Finance data reveals the average mortgage term has crept up from 29 years (2017-19 average) to 31 years in the first four months of 2024.
- Location, location, location (or maybe not!): In the new build market, FTBs are showing a willingness to compromise on the size or location of their dream home to make it a reality.
- Outpacing rent rises: With private rents still climbing rapidly, many potential FTBs are determined to escape the rental trap and buy as soon as they can. Although rental growth has slowed from its peak of 12.2% in July 2022, it still hit 6.6% in April 2024 (Zoopla) – a significant jump compared to previous years.
Signs of Hope: Affordability Starts to Improve
The start of 2024 brought a glimmer of hope for those struggling with affordability. Mortgage rates dipped in January and February as lenders passed on cuts, causing a surge in interest from buyers and a much-needed boost to the market. Although rates have crept up slightly since then, they’re still lower than the peaks seen in 2023.
This improvement in affordability saw the number of FTBs narrow to just 6% below pre-pandemic levels in February 2024, highlighting the huge pent-up demand ready to be unleashed if mortgage rates become more favourable.
Bigger Budgets for First-Time Buyers
As affordability pressures ease, FTBs are finding themselves with a bit more wiggle room in their budgets. While 2023 saw buyers tightening their belts and opting for slightly cheaper properties (the average purchase price dipped to £264,500 from £265,400 in 2022), things are looking up in 2024. UK Finance data reveals that between January and April 2024, the average price paid by FTBs rose to £265,100.
Could Rate Cuts Be on the Horizon?
Experts predict that affordability will continue to improve in the coming months. Inflation fell to the Bank of England’s 2% target in May (ONS), raising hopes of an interest rate cut soon. Oxford Economics forecasts the first cut could come as early as August, with another following later in the year. If this happens, it’s likely lenders will cut their mortgage rates, making it even easier for aspiring homeowners to finally step onto the property ladder.