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Catch-22 for first-time buyers

Journalist: Newspage News Desk

ended 07. August 2023

In the Halifax July house price index published earlier, Kim Kinnaird, director of Halifax Mortgages, said “we’re seeing activity amongst first-time buyers hold up relatively well", but experts were divided about the level of demand and cautioned many aspiring homeowners are facing a Catch-22.

Joe Garner, managing director of property consultants, Joe Garner Consulting, explained: “For many first-time buyers, mortgage rates will need to drop significantly for them to achieve affordability criteria, however falling mortgage rates are likely to result in greater activity in the market, which will lead to house prices increasing. It's a Catch-22.”

On the ground, brokers and property experts were divided about the level of demand from first-time buyers, with some reporting it's strong, while others saying they haven't seen a resurgence of first-time buyer activity yet.

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, said demand among first-time buyers is not just holding up, but is firing on all cylinders: “We've seen more first-time buyers in the past two weeks than in the previous two months. This segment of the market is proving especially resilient. With the sell-off in the buy-to-let market in full swing, combined with an increase in more property for sale generally, aspiring homeowners can smell blood.”

Kirsty Wells, director of Saint Leonards-on-Sea-based Blueprint Mortgages, delivered much the same verdict: "In the past few months, I have had a big increase in enquiries from first-time buyers. They are in a much stronger position currently as so many people have their properties on the market but can't sell so building a chain is very tricky, whereas if a first-time buyer can come along and save the day, then they can negotiate a better price".

That view was shared by Lee Gathercole, co-founder at Peterborough-based mortgage broker, Rebus Financial Services: “It certainly seems like a good time to buy when looking at the average value of property compared to last year. There is considerably less competition for buyers in the market and it was only a year ago that everyone was fighting for properties and paying over the asking price. Right now, first-time buyers are in a really strong position when it comes to negotiating on price.”

And when they are negotiating, many first-time buyers are doing it with landlords, who are increasingly selling up for affordability and regulatory reasons. Elliott Culley, director at Hayling Island-based Switch Mortgage Finance said: "I have seen many first-time buyers purchasing properties being sold by landlords at reduced prices."

Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages, also noted the surge in enquiries from people aspiring to get onto the property ladder as prices come down: “For certain first-time buyers, current market conditions are playing out perfectly. Locally, we are seeing big reductions in asking prices compared to recent years and for those first-time buyers who can stomach and afford the higher interest rates, now is a great time to get onto the property ladder at a lower entry price. Also, buying while rates are as high as they are at present gives great reassurance to their future affordability, knowing they can handle periods of less favourable rates.”

But not all brokers are seeing strong activity levels among first-time buyers, with one warning that lenders may be cautious at higher loan-to-values as house prices come under pressure.

Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, concluded: “We haven't seen a resurgence of first-time buyer activity yet. Also, as house prices fall, lenders will be less happy to provide high loan-to-value mortgages, so the good news that house prices are cheaper is being counteracted by the fact first-time buyers need bigger deposits. That being said, most first-time buyers will likely be waiting and saving and getting themselves ready to strike when the ideal buying conditions finally align for them. That may not be far off.”

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Premium
Lewis Shaw
Owner and Mortgage Expert at Shaw Financial Services
Reflecting what the Halifax have said, we've seen more first-time buyers in the past two weeks than in the previous two months. This segment of the market is proving especially resilient. With the sell-off in the buy-to-let market in full swing, combined with an increase in more property for sale generally, aspiring homeowners can smell blood. First-time buyers are in an incredibly strong position, and it's not uncommon to see them agreeing on purchases at 10% to 15% below the marketed price. It must be hard going for estate agents trying to manage vendor expectations. However, this is a sign of the times, and those sellers that don't take a fair offer now could find they're much more out of pocket in a month or two.
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Platinum
Stephen Perkins
Managing Director at Yellow Brick Mortgages
We haven't seen a resurgence of first-time buyer activity yet. Whilst house prices have started to reduce slightly, there hasn't yet been a large decrease. Mortgage rates are starting to ease, but there should be more reductions to come over the coming months. There also has not yet been an influx of people being forced to sell due to their mortgage increases, with most simply re-structuring their mortgage to limit the impact. Also, as house prices fall, lenders will be less happy to provide high loan-to-value mortgages, so the good news that house prices are cheaper is being counteracted by the fact first-time buyers need bigger deposits. That being said, most first-time buyers will likely be waiting and saving and getting themselves ready to strike when the ideal buying conditions finally align for them. That may not be far off.
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Riz Malik
Director at R3 Mortgages
The rise in borrowing expenses has certainly affected the market for first-time buyers in London and the south-east. Furthermore, there's a prevailing concern that more significant decreases could be on the horizon. This apprehension is validated by the Halifax house price index data released today. The UK housing market is not just being resilient. The interventions under the mortgage charter are currently supporting the UK's property market, therefore we might not see price drops compensating for the elevated mortgage costs just yet. The information presented by Halifax today merely signifies the beginning of the downturn.
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Premium
Elliott Culley
Director at Switch Mortgage Finance
On the one hand, first-time buyers are in a strong position because house prices have been falling, but on the other side, they are having to pay much more on the mortgage repayments. I have seen many first-time buyers purchasing properties being sold by landlords at reduced prices. However, most are still put off by the high interest rates. In my experience, the first-time buyer market was stronger when rates were in the 4%'s, but house prices as a result were a bit stronger, so it is a delicate balancing act right now.
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Lee Gathercole
Co-Founder at Rebus Financial Services
It certainly seems like a good time to buy when looking at the average value of property compared to last year. There is considerably less competition for buyers in the market and it was only a year ago that everyone was fighting for properties and paying over the asking price. Right now, first-time buyers are in a really strong position when it comes to negotiating on price. As always we recommend that first-time buyers speak to a mortgage broker first to understand their budget for properties, especially given the higher interest rates, and obtain a pre-approval (agreement in principle) before going house hunting. This makes you a serious buyer and gives the agent confidence when viewing.
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Premium
Graham Cox
Director at Self-Employed Mortgage Specialist SEMH
First-time buyers are still out there and buying, but there's understandable caution about mortgage rates. However, as long as you can show estate agents you have a Decision in Principle, you're in a very strong position to drive a hard bargain. For the first time in 15 years, it's a buyer's market. So with mortgages expensive and house prices falling, don't be afraid to offer significantly under the asking price. Because in two years' time, your home could be valued at 15%-20% cheaper than it is now. If you have a 5%-10% deposit, you could slip into negative equity where the mortgage balance is more than what you can sell the property for. So it's imperative to bid accordingly. Put all offers in writing and ask the agent to confirm back in writing that the offer has been passed on. Above all, play hardball, keep your cards close to your chest and shop around.
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Premium
Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
In the current landscape, cash is king. Buyers equipped with cash have a considerable advantage, as they can offer quick and straightforward transactions, enticing sellers seeking a swift sale. Being chain-free also plays a pivotal role, allowing first-time buyers to stand out and assure sellers of a seamless, hassle-free process. First-time buyers and investors in today’s market are in a much stronger position to negotiate reductions in asking prices, with sellers and estate agents becoming more receptive to realistic offers up to 10%-15% below asking prices at times. My advice for those about to make an offer is to conduct thorough research on local market trends, seek guidance from experienced estate agents, and embrace the current market dynamics to secure your dream property. Be careful, however, to pay today’s prices for the property you are interested in, not last year’s.
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Jamie Lennox
Director at Dimora Mortgages
For certain first-time buyers, current market conditions are playing out perfectly. Locally, we are seeing big reductions in asking prices compared to recent years and for those first-time buyers who can stomach and afford the higher interest rates, now is a great time to get onto the property ladder at a lower entry price. Also, buying while rates are as high as they are at present gives great reassurance to their future affordability, knowing they can handle periods of less favourable rates.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
First time buyer activity is minimal due to borrowing costs and affordability. The price of housing is irrelevant if the pool of buyers is unable to borrow money due to an inability to afford the repayments. For many first-time buyers, mortgage rates will need to drop significantly for them to achieve affordability criteria, however falling mortgage rates is likely to result in greater activity in the market, which will lead to house prices increasing. It's a Catch-22. Other than those who have amazing timing, it will be professional investors with cash who benefit from current market conditions rather than first-time buyers.
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Kirsty Wells
Director at Blueprint Mortgages & Protection
In the past few months, I have had a big increase in enquiries from first-time buyers. They are in a much stronger position currently as so many people have their properties on the market but can't sell so building a chain is very tricky, whereas if a first-time buyer can come along and save the day, then they can negotiate a better price. I have seen clients negotiating around 5% off average asking prices recently. I think it's important to find out the owner's position and if they have found somewhere as this will make them more desperate in most cases to agree on a sale, compared to a seller who has put the property on the market purely to 'test the water'. Plus it's always worth a cheeky offer, to gauge the reaction from the agent and seller to see what you would need to move up to.