A million first-time buyers delay house purchases due to mortgage rates and cost of living


The cost-of-living crisis has forced more than a million hopeful first time buyers under 45 years old to put their plans on hold, a new survey by Aviva has found.

One in five of those surveyed said that the cost-of-living crisis and inflation were making buying a house unaffordable.

The survey, focused on under 45s who had never owned a property, found that just under half (46 per cent) were not currently looking to buy but intended to do so in future, with a further 16 per cent saying they had no intention of doing so.

Kept off the ladder: First time buyers are unable to make the jump onto the property ladder due to rising inflation and mortgage rates, according to an Aviva survey

The survey also suggested that those who are still planning to buy may be underestimating the cost of a mortgage, as interest rates have shot up in the past few months.

Those intending to buy or in the process of buying their first property expected to take out a mortgage of £196,700 on average, and anticipated putting down a £25,210 deposit.

Based on these figures, they say they are expecting a monthly mortgage payment of £718.60.

However, when these figures were put into a high street building society online mortgage calculator this week, the results showed they would be paying £1,103.86 per month on a two-year fixed deal, or £928.07 monthly on a two-year base rate tracker.

It means buyers could be underestimating their mortgage costs by up to 54 per cent.

>> Check the latest mortgage rates you could apply for using our calculator 

First time buyers face an uphill battle in the current conditions. Mortgage rates have risen rapidly over the past year while house prices are set to fall in the near future.

The average two-year fix peaked at 6.65 per cent on 20 October, according to Moneyfacts. 

While that has decreased in the last couple of weeks and is now sitting at 6.22 per cent, it is still much higher than the typical rate before the ill-fated mini-Budget on 23 September which was 4.74 per cent.

This time last year, the average deal charged 2.29 per cent, meaning homebuyers taking out a new mortgage today could be paying hundreds of pounds more each month compared to those who fixed last year.

However, there is some good news as rates slowly begin to fall.  Last week the average cost of two-year fixed rate deals across all loan-to-value brackets fell every day, according to Moneyfacts. 

This week, Santander announced it was bringing down all its residential mortgage  rates by up to 0.45 per cent. All residential tracker rates have also been reduced by up to 1.25 per cent, the lender said in a note to brokers. 

Lewis Shaw, mortgage advisor and owner at Riverside Mortgages, said: ‘I think as lenders look to fulfil their lending requirements, there’s every chance we’ll see more competition for what mainstream lenders perceive as better borrowers with good credit profiles and solid employment, driving some lower LTV rates down.

‘It certainly feels as though we can see the light at the end of the tunnel now the dust is settling following the mini-Budget catastrophe.’

On top of much higher mortgage costs, first-time buyers will be fearing house price falls, heightening the risk of falling into negative equity for those buying with small deposits.

Mortgage rates have begun to fall after rising sharply last month following the mini-Budget

Mortgage rates have begun to fall after rising sharply last month following the mini-Budget

Delaying purchase ‘could impact later life finances’

Matt McGill, managing director at Aviva Equity Release, said that delaying a house purchase today could have a lifelong impact on younger people’s finances. 

This is because many people rely on equity from their home to provide them with funds later in life.

‘The cost-of-living crisis, and other factors resulting in higher inflation and interest rates, have put pressure on people juggling competing financial demands,’ McGill said. 

‘Events of the past few months have created uncertainty; nobody can predict the outlook for the coming months with any confidence.

‘Despite resilient housing market activity, it now appears rising mortgage rates are dissuading many from taking that important first step onto the property ladder. In years to come, this will have a knock-on effect for younger people today.

‘Wealth held in property contributes greatly to someone’s overall assets and can be used as a valuable source of funds, particularly later in life. In the event of any property market adjustment, most people’s most valuable asset will still be their home.’

Bank of Mum and Dad: 16% of survey respondents said they were expecting a gift or loan from family to help with home buying costs

Bank of Mum and Dad: 16% of survey respondents said they were expecting a gift or loan from family to help with home buying costs

The increasing pressures for first time buyers has highlighted the role of intergenerational wealth in helping young people get on to the housing ladder.

Across the study, 12 per cent of respondents said they were expecting a gift or loan from parents to help meet their costs, and 4 per cent said they expected the same from grandparents.

Contributions are generally more generous from grandparents. On average they contribute a gift of £18,850, and £16,990 as a loan, compared with £17,730 and £14,130 respectively from parents.

If this level of gifting or loaning were seen across the first-time buyer market, this would represent more than £23bn of first-time buyer costs being provided by the buyer’s family.

McGill adds: ‘The amount of support being given or intended by different generations of the family to first-time buyers is substantial. We have seen this trend, particularly of grandparents providing funding, increase in recent years.

‘Family members are more and more willing to use wealth they have accumulated in property over the years to provide younger people with a leg up onto the property ladder.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic, writes This is Money editor Simon Lambert.

Banks and building societies are still lending and mortgages are still on offer with applications being accepted. 

Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates. 

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

This is Money’s mortgage broker partner L&C told me that mortgages are still available and you can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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