A new report from the Building Societies Association has found that a significant number of potential first-time buyers have failed to get on the property ladder since the financial crisis.
Analysis of historic first-time buyer data shows that around 7.2 million individuals or couples would have been expected to buy their first home since 2006. However, only 5 million achieved homeownership in this time, meaning there are 2.2 million missing first-time buyers from the property market.
The BSA says today’s first-time buyers face a double affordability challenge – an almost record-high cost of buying a home and the end of record-low mortgage rates.
As a result, repayments as a proportion of income for new first-time buyers has increased by around 30% (22% of income) since its low in 2020 (18% of income).
Recently mortgage rates have started to ease, and further Bank Rate cuts which are expected this year should help improve repayment affordability. However, BSA research suggests first-time buyers are still ranking mortgage affordability as the biggest barrier to buying a home, with two-thirds (65%) selecting this.
Raising a deposit was also highlighted as a significant obstacle to homeownership, with 62% of would-be homebuyers citing this.
Most successful first-time buyers are stretching themselves to get on the property ladder, with many using higher loan-to-income and higher loan-to-value mortgages to mitigate the challenge of raising the initial deposit.
Choosing to have a higher monthly repayment, supported in part by wage growth, is likely to be the biggest factor that has enabled successful first-time buyers to achieve homeownership.
During the immediate aftermath of the financial crisis the missing buyers were broadly split across all age groups, but in more recent years they have tended to be those in the younger bracket – particularly those under 30.
Initiatives aimed at increasing first-time buyer numbers in the future will therefore need to target both younger borrowers, whilst also supporting those that missed getting on the property ladder at a younger age and failed to catch up at a later age.
The association claims many FTBs are “stuck in the private rented sector, where rental repayments as a proportion of income are significantly higher than mortgage repayments – even when the recent rise in mortgage rates has been considered. This severely limits the ability of those in the private rented sector to save for a deposit.”
Higher loan-to-value mortgages can help more private renters to buy their first home, but not all.
Whilst some 95% and higher loan-to-value loans can be found today their availability has been more limited since the financial crisis. Also, they are not a one-stop solution for all potential first-time buyers.
Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, says:
“I’m disappointed that 12 months on from our first report, which highlighted the struggles faced by first-time buyers and the potential roadmap for change, the barriers to homeownership remain the same today.
“It’s shocking that 2.2 million first-time buyers who would have reasonably expected to buy their own home have failed to do so since the financial crisis. And every day that passes without real action the number of potential lifetime renters is growing.
“We know that there is no single solution for all first-time buyers, and not all aspiring homeowners will be able to achieve their dream whilst the double affordability challenge of the high cost of buying and high cost of owning a home remains.
“However … several tangible actions can be implemented to help fix the broken housing market and to support the next generation of homeowners.”
