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First-time buyer demand

Journalist: Melissa Lawford, The Telegraph

ended 07. November 2022

How has the jump in mortgage rates hit first-time buyers? How much has demand from first-time buyers fallen since mortgage rates began to rocket? Are you seeing first-time buyers reducing their offers/budgets because they can no longer borrow as much as before (and if so, by how much)? Are first-time buyers expressing concerns about falling into negative equity?

10 responses from the Newspage community

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Christopher Hall
Director at Mortgage Guardian
The jump in mortgage rates is hitting first-time buyers especially hard at the moment. Whilst many realise that the future is not looking too bright, it's only when engaging with a mortgage adviser does it finally sink in. Not only has the monthly cost of borrowing gone up but lenders have tightened up on credit scoring, thus filtering out many first-time buyers who would have previously qualified. Affordability calculations have reduced the amount that an applicant can borrow because of the rise in the cost of living and interest rates rising. Applicants are offloading the car loans and sending partners out to work earlier than planned after child birth so that they can buy a house that will serve their needs. Even a part-time job can increase the borrowing calculation. Many still would like to buy if it is affordable and bigger deposits are sometimes the key to make it work. Some parents can help and some cannot. Yes, there is a worry that house prices may reduce but the decision is still to buy if they can. Negative equity is a short-term problem but finding a home to live in is a need right now.
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Justin Moy
Managing Director at EHF Mortgages
We have seen the number of first-time buyers seeking mortgage advice fall significantly over the past month or so, but I would say this has been reducing for some time now. Those that have been in contact with us understand the market conditions, but they have concerns about the higher mortgage payments they're now facing. Stretching the term to 35, or even 40 years, is definitely a more common conversation we're having with buyers, even if it is for a short timescale. That mortgage term can always be reduced in a few years time, when affordable. Locally, owning is just about cheaper than renting, if you have a minimum 10% deposit and take the mortgage term to its maximum. Any more increase in rates and that see-saw will tip the other way.
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Rob Peters
Principal at Simple Fast Mortgage
First-time buyers are on the front line of the interest rate battle and consequently are the the first victims, helpless to do anything but watch their hopes of property ownership suffer a quick but brutal death. The gap between property prices and wages is such a vast chasm that for many it is simply unobtainable. Recent increases in interest rates has exacerbated the issue further and, without Government intervention the future of property ownership could be something accessible to only the privileged few.
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Craig Fish
Director at Lodestone Mortgages
We are still dealing with first time buyer enquiries, and the increase in rates hasn't put the determined ones off. This is surprising as in some cases our initial conversations with them were prior to the mini budget and the market fallout thereafter. They are clearly seeing quite significant increases in the rates from those that were originally quoted, but it isn't deterring them. They have been waiting for a significant amount of time to be in the position to buy and have saved deposits accordingly, so their view is it's now or never. Similarly, at present, it also doesn't seem to be having an impact on the prices that they are paying, even though we are bringing up the subject of negative equity and price falls of circa 10 - 20%. They are certainly not going back to the vendors to renegotiate on price. There is of course no doubt that those with smaller deposits are potentially facing negative equity, but as the purchase is a long-term thing, they are also confident with the knowledge that property prices tend to recover in the long run.
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Rita Kohli
Managing Director at The Mortgage Stop
There hasn't been a drop in demand as yet, however we are seeing more a of a wait-and-see approach from many first-time buyers as they hope that prices will start to come down in the near future. We are finding, in some cases, that some first-time buyers are seeing themselves priced out of the market altogether, putting their plans on hold as mortgage repayments become too expensive. Those that are still able to proceed with their purchase are finding they need to have larger deposits as lender affordability tightens. We have started to see fewer offers that are above original asking price and we have also seen that valuations from lenders are coming in lower than the agreed purchase prices, especially where the agreed price was asking price. As a response to this, some buyers are trying to renegotiate for lower prices but we are not seeing concerns about negative equity from first-time buyers who are purchasing for the long term.
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Elliott Benson
Owner at Sett Mortgages
Dealing predominantly with first-time buyers, I have noticed a much more cautious approach to buying since rates increased from the buyers I deal with consisting of much more frequent meetings regarding figures, buying scenarios and budgeting. I have not yet noticed a significant drop in enquiries as many young people still want to get on the property ladder however the ultra competitive, way over asking price bids for property we have seen recently are starting to die out.
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Jamie Lennox
Director at Dimora Mortgages
Demand has fallen off a cliff edge for many first-time buyers in our local area of Norfolk as I suspect it has in other areas of the UK. The fear of buying ahead of a looming recession and house prices crashing has firmly put the brakes on for many. The handful of people who are still happy to consider buying are hit with shock at what a typical first-time buyer home will now cost on a mortgage and in fact in some situations it's cheaper to rent. Many first-time buyers have heard the horror stories of the global financial crisis and recession of 2008/09 and don't want to be caught out the same way.
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Hannah Bashford
Director at Model Financial Solutions
I have seen many first-time buyers holding off to 'see what happens' to house prices and interest rates. With the uncertainty of house prices and interest rates there is never going to be a 'best time to buy' as we simply cannot predict that, so if someone's circumstances dictate that they want to or need to move then they shouldn't be put off. Some have still been looking but we have had to research what they can afford again as the calculations changed in the early autumn so anyone that had a decision in principle over the summer, we have advised them to look at the figures again. This time of the year is usually quieter as people start to get ready for Christmas and aren't thinking about putting their home on the market or moving. It will be interesting to see what happens in January when we usually see a flurry of activity. Most first-time buyers do not know what negative equity is so we haven't had that question come up and it should only be a concern for them if they bought and sold in a short period of time because historically house prices always increase over the longer term even if they enter short periods of decline.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Most looking at buying property, be that first-time buyers or movers, are adopting a "wait and see" stance. This is due to the current level of house prices and talk of some price falls next year, but also a result of the mortgage costs being so high and again talk of these potentially reducing in the coming weeks and months. I think there is a real concern for people that if they buy now, they'll have paid £10,000 too much for the house and be paying £80 per month more for the mortgage than they could have if they'd just waited a little while. And that's all before we start to think about how the talk of recession is impacting on people's confidence in their own job security.
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Ben Street
Mortgage Broker at Matt Clarke Mortgage Services
Without a doubt, there has been a reduction in first-time buyer demand and purchases. Those first-time buyers that I have been having conversations with over the past 4 months, eagerly trying to do all they can to save a deposit, have now found that mortgage payments within the same loan parameters are now becoming less and less affordable. Many first-time buyers are likely to sit on their hands, see what the market does and hope for some kind of property price correction. And perhaps there will be some form of Government intervention.