Soaring house prices and high mortgage rates mean hopeful homeowners are facing record monthly repayments.
While mortgage rates fell a little recently, buying your first home is still hard, with average monthly mortgage payments now £353 higher than they were just five years ago.
Rightmove’s latest figures reveal the average first-time buyer now faces forking out £931 each month, a huge jump from the £578 they would have paid in 2019.
This surge in costs is driven by a toxic cocktail of soaring house prices and stubbornly high mortgage interest rates.
Interest rates bite
The average five-year fixed mortgage rate for a first-time buyer stumping up a 20% deposit now sits at 4.58%. That’s more than double the 2.13% rate on offer back in 2019, adding a hefty chunk onto monthly payments.
House prices continue to climb
As if higher interest rates weren’t enough, first-time buyers are also grappling with sky-high property prices. The average two-bedroom property in Great Britain – the kind typically targeted by those stepping onto the ladder – now costs £227,570. That’s a hefty 18% more expensive than the £192,221 it would have set you back in 2019.
Buyers delay and borrow for longer
Faced with these daunting financial hurdles, it’s no surprise that first-time buyers are delaying their dreams of homeownership. The average age of a first-time buyer has now crept up to 33, compared to 32 in 2019.
And in a bid to make those monthly payments more manageable, buyers are also stretching their mortgages over longer terms. The average first-time buyer mortgage now runs for 31 years, up from 29 years in 2019.
Regional differences
Rightmove’s research also reveals stark regional differences in affordability.
In London, the dream of owning a home seems further away than ever. The typical starter home in the capital now costs nearly five times the average combined salary of two people. This presents a massive challenge for buyers hoping to secure a mortgage, as lenders generally stick to a loan limit of 4.5 times joint income.
Meanwhile, first-time buyers in the North West have been hit by a staggering 75% increase in monthly mortgage payments compared to five years ago. This region has also experienced the sharpest rise in asking prices, with a 29% jump over the same period.
Yorkshire and the Humber paint a similarly bleak picture. Monthly mortgage payments in this region have surged by a colossal 74%, while wages have only grown by 25% over the past five years – the biggest gap between wage growth and mortgage payment increases in the entire country.
Calls for action
Matt Smith, Rightmove’s mortgage expert, acknowledges that current regulations are designed to protect borrowers from taking on too much debt. However, he also points out that these rules are unintentionally shutting many aspiring homeowners, particularly first-time buyers, out of the market.
Smith calls for a comprehensive review of mortgage affordability criteria by both the government and regulators. He believes this could pave the way for more innovative lending solutions, making it easier for first-time buyers to access the market responsibly.
Rightmove’s Tim Bannister echoes these sentiments, highlighting the need for support to help more people achieve their homeownership aspirations.
He acknowledges the recent improvements in the market, with more choice for first-time buyers and a surge in buyer enquiries. However, he stresses that mortgage rates, although off their peak, remain significantly higher than recent norms.
As a result, first-time buyers are increasingly resorting to longer mortgage terms, delaying their purchases to save larger deposits, and setting their sights on more affordable areas.
Until affordability improves, the dream of owning a home will sadly remain out of reach for many.