Almost half a million first time buyers could miss out on a home, research suggests

Analysis of economic data by Leeds Building Society, looked at the housing affordability between 1982 and last year to investigate how the challenges of affording a home have changed in recent years.

The report made projections for the number of first-time buyers in England in the years from 2023 to 2027 and compared this with the average number of people getting on the property ladder over the 40 years between 1982 and 2022.

Cumulatively, over the five-year forecast period, and when set against a 40-year average of 340,000 first-time buyer transactions, 426,000 fewer first-time buyers will be able to join the housing ladder at the current trajectory, without intervention, the report predicted.

There have recently been signs of house prices falling back, and the report forecasts a gradual improvement for first-time buyers in England from 2023 until 2027.

But it said that mortgage interest rates for first-time buyers are forecast to fall only slowly and the cash deposits typically required will remain relatively high.

Richard Fearon, chief executive of Leeds Building Society, said previously low interest rates “have papered over the cracks in the housing market”.

He added: “It has masked a growing gap between people with the ability, or family help, to build ever higher deposits and stretch their repayments and those who cannot.”

With the Bank of England base rate increasing 14 times to 5.25 per cent, 2023 is a “crunch year” for first-time buyers, Leeds said.

The society said it believes that it is getting harder to become a first-time buyer without help towards a deposit or the ability to live rent-free, leading to the “gentrification” of first-time buyers.

Mr Fearon added: “We need to develop a long-term plan before things get even worse, building more homes of all types, increasing affordable routes to home ownership and supporting people to save for their deposit.”

It comes after the Bank of England kept rates steady at 5.25 per cent earlier this month, with Andrew Bailey, the Bank’s Governor, leaving the door open to further rises in the future, promising to take “the decisions necessary” to return inflation to normal levels.

“Inflation has fallen a lot in recent months, and we think it will continue to do so,” said Mr Bailey, who voted to keep the rate unchanged.

Separate research has suggested that the average five-year fixed-rate homeowner mortgage is edging closer to falling back below the 6 per cent mark.

Across all deposit sizes on the market, the average five-year fixed-rate homeowner mortgage is 6.03 per cent, edging down from 6.04 per cent on Tuesday, Moneyfacts said.

The last time the average five-year fixed deal was below 6% was on July 3, when it stood at 5.97 per cent.

Some major mortgage lenders have been cutting rates this week, with HSBC UK reducing a selection of mortgage rates by up to 0.16 percentage points.

On Tuesday, Santander UK reduced selected mortgage rates by up to 0.50 percentage points.

Matt Smith, a mortgage expert at property website Rightmove, said: “Following the positive news on inflation and the Bank’s decision to hold the base rate, we have seen swap rates, the underlying costs of fixed-rate mortgages, stabilise.

“The important takeaway from last week for those looking to take out a mortgage soon is that the expectation that the base rate has now peaked is now the predominant view of the market, although there is still a sizeable but decreasing risk that we may see one more increase this winter.

“As we approach the final quarter of this year, we are likely to see continued stability in the mortgage market persist with rates continuing to gradually drop and more lenders likely to offer sub-5 per cent deals.

“After what has been a rollercoaster 12 months for mortgage rates since the mini-budget, this will be welcome respite for home movers after what continues to be a difficult adjustment from the prolonged period of ultra-low rates.”