First-time buyers: what does the current mortgage market mean for you?

Buying your first home can feel like a daunting prospect, particularly when mortgage rates, house prices and affordability are all moving parts. However, the current market also offers some reasons for cautious optimism for those preparing to take their first step onto the property ladder.

The first-time buyer market has changed significantly over the last few years. Higher borrowing costs and the rising cost of living have made affordability a key consideration, while many buyers have had to spend longer building up a deposit.

The good news is that the market has become more settled compared with the period of sharp interest rate increases seen from 2021 onwards. Mortgage rates are below the peaks seen during the cost-of-living crisis, although borrowing remains more expensive than it was when rates were at historic lows. House price growth has also been relatively modest, with recent data suggesting the market remains fairly subdued.

Saving a deposit is still a major hurdle, but a significant achievement

For many first-time buyers, building a deposit remains one of the biggest challenges. Research conducted by Coventry Building Society found that the typical first-time buyer surveyed had spent three to four years saving for their deposit. More than half funded at least part of their deposit themselves, while others relied on a partner, inheritance or financial support from family.

A larger deposit can sometimes provide access to a wider range of mortgage products and lower loan-to-value options, but buying with a smaller deposit may still be possible depending on your circumstances and the mortgage products available.

There are also schemes and savings options designed to help prospective buyers build a deposit. For example, the Lifetime ISA can provide a government bonus on eligible savings, subject to its rules and property price limits.

Affordability is about more than the deposit

Having enough saved for a deposit is only part of the picture. Lenders will also consider factors such as income, regular expenditure, existing commitments and credit history when assessing a mortgage application.

This is particularly important because the amount you can borrow isn’t necessarily the same as the amount you would feel comfortable paying each month. It’s worth considering your wider budget, including council tax, household bills, insurance, maintenance and other costs that come with owning a home.

The Coventry research highlighted a significant knowledge gap around these additional expenses. Its survey found that many first-time buyers were unaware of costs such as mortgage product fees, valuation fees and stamp duty before applying.

There are opportunities for first-time buyers

Despite the challenges, first-time buyers remain an important part of the UK housing market, and there are signs that affordability pressures have started to ease in some areas. Recent market data also suggests that buyer demand is beginning to stabilise, although conditions remain mixed across the UK.

For anyone considering buying their first home, understanding your own financial position and the mortgage options available can be a useful starting point. A mortgage broker can explain the different options available to you, discuss lender criteria and help you understand the costs involved before you make any decisions.

The first-time buyer market isn’t without its challenges, but buying your first home is certainly not out of reach for everyone. With careful planning, a realistic budget and a clear understanding of the costs involved, you can put yourself in a stronger position when the right opportunity comes along.

Report released September 26