Despite the economic challenges, first-time buyers are continuing to make their mark on the housing market in 2023. So far this year, first-time buyers accounted for a record 27.1% of all buyers in Great Britain, recovering from a dip late last year when mortgage rates peaked, but following the upward trend in numbers over the last decade.
However, as higher mortgage costs continue to shape the market, first-time buyers are adapting by buying smaller, cheaper properties. The average first-time buyer in Great Britain reduced their budget by nearly £12k compared to last year, a significant shift given the increase in average house price.
2023 also marked the first time in over a decade whereby most first-time buyers now purchase 1 and 2 bed homes, rather than larger properties. The average first-time buyer bought a home with an average of 2.4 bedrooms - the smallest home since 2010 when the lack of funding post-credit crunch made it difficult for first-time buyers, particularly those with small deposits, to borrow money.
In London, where proportionally first-time buyer purchases have reached a record high so far this year, the average buyer has downsized from a 2.4 bedroom property in 2022 to a 2.0 bedroom property in 2023. Here mortgage repayments tend to eat up a higher chunk of buyer’s earnings compared to anywhere else in the country.
Strong rental growth and wider inflation is eroding many renters’ ability to save, meaning those with the funds are choosing to buy now rather than waiting to save up a bigger deposit to afford the home they potentially could have bought last year. All this is likely to put a floor under prices for smaller homes, particularly flats, which we expect to begin tracking changes in the value of larger homes more closely as the year progresses.
Unlike after the 2008 financial crash, high loan-to-value mortgages which typically require a 5%-10% deposit, are still readily available for first-time buyers. Today though, higher rates are weighing down on how much households can borrow, rather than their ability to borrow and therefore buy at all. This readjustment will serve to keep future first-time buyer friendly house price growth in check.