The cost of living pressures are easing for some households due to lower inflation and strong wage growth, yet for many, high house prices and mortgage rates are exacerbating affordability issues. This is particularly true for first-time buyers and those looking to re-mortgage or move home, according to a Property Tracker report from the Building Societies Association (BSA).
Rising Deposits and Mortgage Payments
The BSA’s report highlights that more than half (56%) of people believe the deposit required to buy a home is too high, with this figure rising to 63% among first-time buyers. This concern is well-founded, as a typical first-time buyer now needs a deposit of around £60,000, a 160% increase from the average £23,000 required in 2005. In contrast, wages have grown by less than half this amount over the same period.
Affordability of monthly mortgage repayments is also a growing barrier to homeownership, with 68% of respondents citing this as an issue, up from 62% in March. Similarly, 65% of people find raising a deposit to be an obstacle, an increase from 60% in March.
Anticipation for Bank Rate Announcement
Homeowners and aspiring homeowners are keenly awaiting the MPC announcement on the Bank Rate. Earlier this year, many expected a rate cut this summer, but this now seems unlikely as some inflation measures remain higher than anticipated. Consequently, mortgage affordability may not ease as hoped.
Although mortgage arrears levels have remained low, a small minority of homeowners (10%) are not confident about making their mortgage payments over the next six months, a slight increase from 8% in March.
Expectations of Rising House Prices
An increasing number of people believe house prices will rise over the next 12 months—45% compared to 41% in March and just 23% in June 2023. Rising house prices, especially when they outstrip wage growth, are likely to further increase the burden of raising a deposit for first-time homebuyers.
Industry Insights
Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, commented on the findings:
“It’s unsurprising that housing market sentiment has declined this month, as mortgage affordability continues to be a significant barrier to buying and owning a home. Borrowers will be disappointed that the Bank Rate is expected to remain unchanged today, as a cut would have provided a little much-needed optimism to homeowners and first-time buyers.”
Broadhead emphasized the need for long-term solutions:
“Whilst it is pleasing to see the main political parties recognizing the struggles of homebuyers, particularly first-time buyers, in their manifestos, it will take more than short-term government schemes to fix our broken housing market. The new government must commit to working with lenders, regulators, the wider housing market industry, and the public to make homes more affordable, more available, and more appropriate to the needs of those living in them and the world we live in.”
Roadmap for Change
In the BSA’s first-time buyer report—“Age-old Problems, Modern Solutions: A Roadmap for Change”—potential long-term solutions are identified to support not only today’s first-time buyers but also future generations of homebuyers. Broadhead hopes that whichever party leads the government after July 5th will commit to new and radical solutions to support the UK housing market.
Conclusion
The current state of the housing market presents significant challenges for first-time buyers and homeowners alike. High house prices and mortgage rates are creating substantial barriers to affordability. While some political attention is being paid to these issues, long-term, collaborative solutions involving all stakeholders are essential to making homeownership more accessible and sustainable in the UK.
