New research from Rightmove finds that the price of a typical first-time buyer home has risen three times in the past two years than it was in the two years before the pandemic.
The property portal found that rents have also risen at very high rates, increasing by 17 per cent or £128 per month since the start of the coronavirus crisis.
Average asking prices for first-time buyer homes, which Rightmove defines as those with two bedrooms or less, are at a record £224,943 across the UK.
That’s 13 percent higher than it was two years ago, and a much larger increase than the 4 percent increase seen between 2018 and 2020.
Rising rents: Experts warn that the rising cost of rents is putting additional financial pressure on potential first-time buyers trying to save up on a deposit
Experts warn that putting a deposit together is becoming increasingly difficult for potential first-time buyers, especially as rising rent prices hurt their expenses and limit what they can save.
The average 10 per cent deposit for a first-time home has risen by £2,560 over the past two years to £22,493, compared with a jump of £807 between July 2018 and July 2020, Rightmove said.
Tim Bannister, data expert at Rightmove comments: ‘For potential first-time buyers trying to save on a deposit, they’re chasing a fast-moving target as average demand prices for first-time buyer homes hit a new record and rose faster than they’ve been before. epidemic.
For those who cannot live with parents or family members while saving, they also have to manage paying standard rents in and out of London.
“Something we’ve seen more of over the past couple of years, particularly as working from home has become more common, is that people are looking away or at a greater number of different areas when looking to move, to see what’s available within their budget.”
Chris Sykes, technical director at mortgage specialist Private Finance, blames a housing shortage for the price hike as well as a “reluctance of second-graders to move up the housing ladder”.
This reluctance is due in part to the cost of living crisis and ongoing economic uncertainty.
Sykes says increases in moving costs, such as attorneys’ fees, are also having an impact on this group of homeowners.
Last week it was revealed that average legal fees had risen by 11 per cent or £140 in the past 12 months, from £1,273 to £1,413.
Despite these pressures, Rightmove found that there are 35 percent more people inquiring about first-time homebuyers now than in 2019.
This compares to a 26 per cent increase across all types of real estate.
David Hollingworth of mortgage broker L&C suggests those saving for their first deposit could benefit from the Isa for Life scheme, which offers a 25 per cent bonus on up to £4,000 in savings each year.
“However, Mom and Dad’s bank looks likely to remain a big part of making the dreams of many aspiring first-time buyers come true,” he adds.
Mortgage rates are on the rise
Those who can afford also face steep mortgage rates as interest rates drive up the per month cost.
Based on current average rates, the average monthly mortgage payment for a new first time buyer is £976 – £173 more than it was two years ago. Average monthly mortgage payments increased by just £41 between 2018 and 2020.
Bannister advises first-time buyers to look for fixed-price products to protect themselves from higher interest rates in the future.
Staying put: Experts note that first-time homeowners are reluctant to move up the real estate ladder due to economic pressures, exacerbating a housing shortage for new buyers.
One way buyers can make their monthly payments cheaper is to take out a mortgage term that is longer than the standard rate of 25 to 30 years, although this will generally increase the interest they pay.
It’s also an issue for first-time buyers over the age of 40, as many banks stipulate that the mortgage must be paid off by the age of 70.
“One of the tools many first-time buyers use to increase affordability is to maximize the term of the mortgage — but the older you get, the less you can extend the term and perhaps the less you can borrow,” says Sykes.
Another new development in the mortgage market is the growing number of low-deposit loans for those who purchase newly built homes.
Lenders usually ask for a 15 percent deposit, but there are now options available with deposits of less than 5 percent.
“While there is a good selection of mortgage options at 95 percent in the broader markets, lenders have often required a larger down payment for new construction, especially apartments,” says Hollingworth.
He added that mortgage lenders have to “find the right balance, helping first-time buyers get up the ladder without stretching to the point where they can find the mortgage unaffordable”.
Best mortgage rates and how to find them
Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with an independent, no-fee L&C broker.
The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.
You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.
Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.
> Compare the best mortgage deals available now
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.