Is now a good time to get on the property ladder?
Getting a foot on the property ladder is a dream for many people and, when buying your first property, timing can have an effect on both the price you pay and the availability of an affordable mortgage.
Activity in the housing market fluctuates due to seasonal changes in supply and demand and because of wider economic conditions. From a seasonal viewpoint, the busiest period for the housing market is between March and September, with the peak being between March and July. This is usually the best time to start searching for your first home as there will be a large number of properties on the market.
However, the availability of affordable mortgages also fluctuates over time, again driven by economic conditions. When the economic backdrop is positive the housing market will be active with prices increasing and a large range of affordable mortgages available. Conversely, when the economic backdrop is negative house prices start to stagnate, or even fall, and the availability of mortgages reduces as lenders become nervous about lending in a falling market.
Current housing market
Over the course of 2022 and the first half of 2023 the housing market went through a turbulent time due to the events of the mini budget in September 2022 as well as persisting inflationary pressures. According to data from mortgage lender Halifax, the average UK house price was £293,586 in June of 2022. This fell to £281,713 by the end of 2022 before slight increases saw the average UK house price increase to £287,891 in March 2023. House prices have fallen slightly over April and May 2023 with the figures indicating that the average house price in the UK then was £286,532. The most recent report at the time of writing (September 2023) has shown that the average house price in the UK has fallen again to £278,601. For regular updates on the state of the housing market, read our article "What is going to happen to UK house prices?"
Although the rise of inflation has slowed somewhat, interest rates remain high making homeownership more difficult for those who may struggle to meet lenders' affordability criteria. The Bank of England reports that July this year saw 49,500 mortgage approvals and this has dropped to 45,500 in August, the lowest number of approvals since February this year indicating less demand for homes.
Eligible first-time buyers received a boost when the threshold for Stamp Duty Land Tax (SDLT) was increased from £300,000 to £425,000 in September 2022. This means that stamp duty is only payable on properties worth over £425,000 and up to £625,000. First-time buyers purchasing properties worth more than £625,000 will not receive first-time buyer stamp duty relief, meaning stamp duty is payable at the standard rate. Read our article 'Everything you need to know about stamp duty' for more information.
Current mortgage market
The availability of mortgages with a low deposit has stabilised somewhat over the last few months as rising inflation has shown signs of slowing. Notably, the average 5-year fixed rates fell below 6% for the first time in months as the Bank of England voted to keep the base rate the same for the first time in nearly 2 years. The market currently offers the largest number of mortgage deals in around 15 years and a large number of mortgage deals are available to homebuyers with 5% to 10% deposits albeit, interest rates remain relatively high on a significant number of 2-year and 5-year fixed-rate deals. First-time buyers received some good news with the announcement of the continuation of the government's mortgage guarantee scheme in December 2022, a scheme that incentivises lenders to offer 95% LTV mortgage products.
For a guide to the best mortgage products, check out our articles on the best and cheapest 95% LTV and 90% LTV mortgage deals. We also have a more in-depth guide "How much deposit do first-time buyers really need?".
Although the time to secure really competitive rates may now have passed, there is still growing demand for fixed-rate mortgages among first-time buyers as they attempt to avoid the impact of interest rate rises further down the line. However, with affordability assessments a key component to securing a mortgage deal, the rise in the cost of living could significantly impact how much you are able to borrow.
A number of niche but useful options could prove successful in helping first-time buyers onto the property ladder, including Skipton's 100% track record mortgage for renters. Guarantor mortgages continue to offer first-time buyers the option to use a helping hand to get onto the property ladder and you can read about these in our article 'What are guarantor mortgages – and are they a good idea?'. First-time buyers struggling to afford a mortgage may wish to take a look at our independent Tembo review, a mortgage lender that specialises in helping first-time buyers onto the property ladder.
How to get the best first-time buyer mortgage deal
If you are a first-time buyer it is important to understand that lenders will be more cautious when it comes to granting you a mortgage. Making sure your finances are in good order, having a clean credit report, together with a provable regular income are all desirable before applying for a mortgage. To see the best mortgage deals for your own personal circumstance use our Mortgage Best Buy Table and enter a property value as well as your deposit amount.
The larger the deposit you have accumulated, and assuming you have a good credit history, the more likely you are to be accepted for a mortgage and you will also have a wider range of deals to choose from. The bigger your deposit, the lower your mortgage needs to be and that means a lower loan-to-value ratio (LTV). The lower your loan-to-value ratio the better the mortgage deal you are likely to secure as interest rates are more competitively priced at 60-80% LTV ratios.
When arranging a mortgage you can apply directly to a lender or use the services of a mortgage broker, such as Habito* which is an online mortgage broker. Alternatively, you can source a mortgage broker in your area using the directory services VouchedFor* or Unbiased* - both of these websites will allow you to search for vetted financial professionals local to you based on customers' reviews.
Applying directly to a lender will limit your choice of mortgages whereas using a reputable mortgage broker will provide a wider choice of lenders and mortgage deals. Before applying for your first mortgage make sure you check all the details of the loan and the costs involved so that you fully understand your commitments.
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