First-Time Buyers: The Resilient Heroes of the Mortgage Market

The mortgage market has been through a tumultuous period, with interest rates skyrocketing and leaving many would-be homeowners reeling. However, amidst the chaos, a surprising trend has emerged: first-time buyers (FTBs) are proving to be more resilient than their counterparts, including landlords and home movers.

According to data from Savills, the number of FTBs taking out mortgages was 30% below their 2017-19 average in April last year. However, by April this year, the figure had recovered to just 11% below the same two-year average. This is in stark contrast to home movers and buy-to-let mortgages, which were both 24% below their 2017-19 average levels in April this year.

The UK housing market has been affected by rising interest rates.

So, what’s behind this surprising trend? According to Savills’ UK residential research analyst, Toby Parsloe, FTBs have adapted to challenging economic conditions by taking out longer mortgage terms to reduce monthly payments while interest rates have been high. The average term length in the first four months of 2024 was 31 years, up from the 2017-19 average of 29 years.

“What this shows is that FTB numbers have maintained their share of around 29% of the whole sales market, while home movers and BTL purchases as a proportion of the market have decreased, and the proportion of cash buyers has risen.” - Toby Parsloe

Another factor contributing to the resilience of FTBs is their willingness to compromise on size or location to get on the housing ladder. High rental growth, which has pushed potential FTBs to take the plunge as soon as possible, is also playing a role. Annual rental growth in April 2024 in the UK was 6.6%, according to Zoopla.

Rental growth has been high in the UK, pushing FTBs to take action.

Greater stability in the mortgage markets at the start of this year has also helped support FTB numbers. Lenders initially cut rates in January and February, which improved affordability for potential buyers and unlocked demand, leading to a boost in market activity.

As Parsloe notes, “affordability pressures are likely to continue to ease” following a BoE base rate cut, which Oxford Economics forecasts will come as early as August. However, other economists believe the BoE’s rate-setting Monetary Policy Committee’s concerns over high wage growth and services inflation mean a first cut may come as late as November.

Interest rates are expected to ease, making it easier for FTBs to get on the ladder.

In conclusion, the resilience of FTBs in the face of rising interest rates is a testament to their determination to get on the housing ladder. As the mortgage market continues to evolve, it will be interesting to see how FTBs adapt to changing circumstances and what opportunities arise for them in the future.