First-time buyer house price increases 13% in two years, as rents also climb

The price of a typical first-time buyer home has risen three times faster in the last two years than in the two years preceding the pandemic, new research from Rightmove has found.

Rents have also climbed at sky-high rates, increasing 17 per cent or £128 per month since the start of the Coronavirus crisis, the property portal found. 

Average asking prices for first-time buyer homes, which Rightmove defines as those with two bedrooms or less, are at a record of £224,943 across the UK. 

This is 13 per cent higher than it was two years ago, and a much bigger rise than the 4 per cent seen between 2018 and 2020. 

Rising rents: The increasing cost of renting is putting additional financial pressure on would-be first time buyers trying to save for a deposit, experts have warned

Experts warn that putting a deposit together is increasingly difficult for would-be first-time buyers, especially as increased rental prices hit their outgoings and limit what they can save.

The average 10 per cent deposit for a first-time home has risen by £2,560 over the past two years to £22,493, compared with a jump of £807 between July 2018 and July 2020, Rightmove said. 

Tim Bannister, Rightmove’s data expert comments: ‘For would-be first-time buyers who are trying to save up a deposit, they are chasing a fast-moving target as average asking prices for first-time buyer homes hit another new record and rise more quickly than they did before the pandemic.

‘For those that aren’t able to live with parents or family members while saving, they also have to manage paying record rents both inside and outside of London. 

‘Something we’ve seen more of over the last couple of years, particularly with working from home becoming more common, is people looking further away or at a greater number of different areas when looking to move, to see what is available within their budget.’

Chris Sykes, technical director at mortgage specialist Private Finance blames the lack of housing supply for the increasing prices as well as the ‘reluctance amongst second steppers to move further up the housing ladder’.

This reluctance is due in part to the cost of living crisis and ongoing economic uncertainty. 

Increases in moving costs, such as solicitors’ fees, are also having an impact on this group of homeowners, Sykes says.

Last week it was revealed that average legal fees have risen by 11 per cent or £140 in the past 12 months, from £1,273 to £1,413.

Despite these pressures, Rightmove found there are 35 per cent more people enquiring about first-time buyer homes now than in 2019. 

This is compared to a 26 per cent increase across all property types.

David Hollingworth from mortgage broker L&C suggests those saving for their first deposit could take advantage of the Lifetime Isa scheme, which offers a 25 per cent bonus on up to £4,000 of savings each year. 

‘However it looks as though the Bank of Mum and Dad is likely to remain a big part of making many aspiring first time buyers’ dreams a reality,’ he adds.

Mortgage rates on the rise 

Those who can afford to buy also face increasingly steep mortgage rates as interest rates push up the monthly cost. 

Based on current average rates, the average monthly mortgage payment for a new first-time buyer is £976 – £173 more than it was two years ago. Average monthly mortgage payments rose just £41 between 2018 and 2020.

Bannister advises first time buyers to seek out fixed-rate products to protect themselves against future rate rises.

Staying put: Experts suggest that first time homeowners are reluctant to move up the property ladder due to economic pressures, exacerbating a shortage of housing for new buyers

Staying put: Experts suggest that first time homeowners are reluctant to move up the property ladder due to economic pressures, exacerbating a shortage of housing for new buyers

One way that buyers can make their monthly payments cheaper is by taking a longer mortgage term than the standard 25 to 30 years, though this will increase the interest they pay overall. 

It is also a problem for first-time buyers over the age of 40, as many banks stipulate that mortgages must be paid off by the age of 70. 

‘One tool many first time buyers utilise to increase affordability is stretching the mortgage term to the maximum – but the older you are, the less the term can be stretched and perhaps the less you can borrow,’ says Sykes.

Another new development in the mortgage market is an increasing number of lower-deposit loans for those purchasing new-build homes. 

Traditionally lenders would ask for a 15 per cent deposit, but now there are options available with deposits as little as 5 per cent. 

‘Although there’s a good range of 95 per cent mortgage options in the wider market lenders have often required a bigger down payment for new build, especially flats,’ says Hollingworth. 

He added that mortgage lenders have to ‘find the right balance, helping first time buyers get on the ladder without stretching themselves to the point where they could find the mortgage unaffordable.’

Best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.

If you are looking to buy your first home, move or remortgage, it’s important to get good independent mortgage advice from a broker who can help you find the best deal. 

To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.

Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.

You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.

Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.

> Compare the best mortgage deals available now