First-time buyers stretched by higher interest rates

I have a first-time buyer client who is currently house hunting but has has had to revise their price range as a result of the higher mortgage payments. A first-time buyer who was buying at £375,000 in May last year until the transaction fell through, is now only able to look at properties with a maximum value of £335,000. The resulting mortgage payments are still £100 more a month with the same percentage deposit for a smaller mortgage. This is the new reality we're in.

I have seen a drop off in first-time buyers over the past few months as they don't want to be paying the higher interest rates. Along with their current lifestyles, which many want to maintain, having a mortgage at 5%+ doesn't work well with them. With the cost of living affecting the affordability assessment with lenders, it also decreases the amount they can borrow. Where once they were able to achieve higher borrowing, those first-time buyers that now cannot are either continuing to rent or they are looking to purchase a much smaller property than they were originally after. The market for first-time buyers is there, but only for a select type. Many FTBs have student loans and credit card balances, which affect the amount they can borrow. With lending restrictions in place, having high interest rates doesn't do them any favours.

We have actually had a busy start to the year with first time buyers. There has however been a shift in their plan. Last year we saw first time buyers pushing their budget, whilst interest rates were low and prices were so high, now we are seeing buyers being more cautious, even smarter - when it comes to what they can get for their money. Rather than maxing out their monthly outgoings, we are having more conversations with buyers wanting to live more comfortably. Even if this means moving away from the areas they had previously looked at buying in, to something more reasonable. I love the fact those first time buyers now looking at getting on the ladder, can do so without having to offer 10-15% over asking price, or being put under pressure to offer quickly in a hectic market.

There are fewer first-time buyers looking to purchase now than there were in autumn, but activity levels are still strong. I think most first-time buyers are just having to adjust their budgets accordingly, looking for more modest homes purely to get their foot on the ladder. The alternative is the rental market and rents are exceptionally high.

We've seen a marked drop off in first-time buyer interest. Mortgage affordability is the crucial issue, house prices are only slightly off their peak, yet interest rates are more than double where they were a year ago.

The best way to make housing more affordable is to allow prices to fall. We should really be incorporating property into the 2% inflation target, like we used to. Letting house prices run amok is what's got us into this mess in the first place.

With higher rates now prevalent in the market, we are seeing first-time buyers putting in lower offers on properties, with limited success to date as vendor expectations have not adjusted and estate agents continue to value at strong levels due to stock shortages. The goal, of course, is to reduce the monthly cost where possible to meet client affordability requirements. This has been seen alongside requests to, and requirements of, extending the mortgage terms to keep the monthly payments more affordable, and more pressure on the bank of Mum and Dad to stump up higher gifted deposits. Something we are seeing some reluctance to do as savings rates start to return to the market at a noticeable level.

Despite the rise in interest rates, compared to last year, I am seeing an increase in the number of First Time Buyers enquiries compared to last year.

Most have seen their rental payments increase and would save money by having a mortgage.

The main issue a lot of First Time Buyers are facing is still around property prices, particularly in Scotland with the offers over process. Although this does look to be changing as house price growth slows.

Whilst rates had increased before Xmas,the New Year has started with reducing rates in particular for higher loan to value mortgages. There is still an appetite to lend, even more so now lenders are starting the new year with a blank loan book. This competition to gain market share has already started a price war with lenders that First Time Buyers can benefit from.

With many landlords asset stripping to maximise profits, there is a great opportunity which first time buyers seem to be taking up. Enquiry levels are surprisingly strong and with many lenders now doing 40yr mortgage terms this has helped to combat affordability and higher rates.

This, coupled with landlords increasing rent to cover higher costs to them, has resulted in more activity than we were expecting and more opportunity for First Time Buyers.

The purchase market overall has dropped dramatically in the last 6 months, but of those looking FTB's are the most active in the market. Property expectations may have changed slightly with the higher interest rates but with increased rents, being a homeowner is still attractive.

With the opportunity to not get caught up in bidding wars and feeling pressurised to pay over the odds, a buyer's market will mean they have a bit more time to make the right decisions and actively negotiate on the price.

An increased in FTB's and stability with the rates will quickly increase confidence in the property market.

The big issue I am seeing with first-time buyers is not a lack of desire to buy, or even issues with affordability (as many have lowered their sights in terms of the property they are looking to buy, to accommodate the drop in their mortgage power), but the deposit. Just a 5% deposit on today's house prices, even for a modest property, is a huge sum of money for most people - well beyond the ability to save it up if you are also renting. Most first-time buyers are now having to stay living with their parents well into their twenties to save the required amount, or they need a gift or inheritance before they can look at buying their first home.

FTB's are telling us they'll have to wait a bit until prices fall or interest rates decrease, as they've planned for lower rates altogether, either that or they need to 'borrow' some deposit from the bank of mum and dad.