First-time homebuyers in England face increasing hurdles, report finds

A new report by Leeds Building Society has projected that up to 426,000 fewer first-time buyers will be able to afford a home between 2023 and 2027. The study was based on an analysis of housing affordability from 1982 to 2022 and used economic data, including Office for Budget Responsibility (OBR) and Treasury forecasts, to predict potential trends over the next five years.

The research found that house prices paid by first-time buyers were 16 times higher in 2022 than in 1982, while first-time buyer gross earnings were only seven times higher. This has led to the house price to earnings ratio for this group more than doubling from two times earnings to almost five times earnings. The average deposit requirements also increased from 25.5% of average first-time buyer earnings in 1982 (£2,100) to 115% in 2022 (£68,700).

Richard Fearon, chief executive of Leeds Building Society, said previously low interest rates “have papered over the cracks in the housing market”. He highlighted a growing gap between people who can build ever higher deposits and stretch their repayments and those who cannot.

The report also indicated that with the Bank of England base rate increasing 14 times to 5.25 per cent, 2023 is a “crunch year” for first-time buyers. It stated that it is becoming harder for individuals to become first-time buyers without help towards a deposit or the ability to live rent-free, leading to the “gentrification” of first-time buyers.

Fearon called for a long-term plan before things worsen, suggesting building more homes of all types, increasing affordable routes to home ownership and supporting people to save for their deposit.

In other related news, separate research suggested that the average five-year fixed-rate homeowner mortgage is edging closer to falling back below the 6 per cent mark. Major mortgage lenders have been reducing rates this week, with HSBC UK reducing a selection of mortgage rates by up to 0.16 percentage points and Santander (BME: SAN ) UK reducing selected mortgage rates by up to 0.50 percentage points.

Despite these challenges, the report forecasts a gradual improvement for first-time buyers in England from 2023 until 2027. However, it predicts that mortgage interest rates for first-time buyers will fall only slowly and the cash deposits typically required will remain relatively high.

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