Contrary to the prevailing belief that first-time buyers are being priced out of the market by landlords, recent figures suggest a different narrative. According to data released by lettings agency Hamptons, the percentage of first-time buyers in the overall property market in Britain reached a record high of 33% in the first quarter of 2024. This surge in first-time buyer activity coincides with a gradual decline in mortgage rates observed earlier this year.
The increase in first-time buyer participation signals a potential shift in the property market dynamics, challenging the notion that landlords are solely responsible for pricing out aspiring homeowners. With mortgage rates on a downward trajectory, more opportunities are emerging for first-time buyers to enter the market, contributing to a more balanced landscape where both renters and buyers can coexist. This trend underscores the importance of monitoring market dynamics closely to better understand the evolving dynamics between landlords, tenants, and prospective homeowners.
The percentage of homes purchased by first-time buyers in Britain has reached a new milestone, climbing to 33% in the first quarter of 2024 from 29% in 2023. This increase reflects improved affordability conditions, enabling individuals who were previously unable to afford homeownership to make the transition from renting to buying.
Over the past decade, the proportion of properties bought by first-time buyers has doubled, rising from 17% in 2014. Factors contributing to this trend include the resurgence of high loan-to-value lending and sustained low-interest rates, which have facilitated increased homeownership opportunities for a broader segment of the population.
While the rise in first-time buyer activity is promising, it has occurred alongside a crackdown on buy-to-let investments, resulting in reduced demand from landlords. However, this shift has often been at the expense of renters, highlighting the complex dynamics at play within the property market.
In the past six months, declining mortgage rates have played a significant role in facilitating moves among first-time buyers, particularly in areas with high housing costs that were most affected last year. This trend has been most pronounced in the South of England, where buyers often face considerable financial strain.
London has witnessed a notable surge in first-time buyer activity, with these buyers accounting for a record 50% of all home purchases in the capital thus far in the year. This marks a substantial increase from the 41% recorded in 2023 and a significant rise from 28% a decade ago.
Despite an average increase in property prices, first-time buyers in London have seen their purchasing power bolstered by lower mortgage rates and rising incomes. On average, they spent £422,660 on their new homes, representing a 5% increase from the previous year. However, compared to pre-2022 levels, high borrowing costs have resulted in first-time buyers spending £108,710 less, enhancing their borrowing capacity.
In recent years, London has experienced significant increases in rent prices, prompting many renters with discretionary income to transition into homeownership.
Similarly, the South East, known for its high property costs, observed a notable 9% year-on-year surge in first-time buyer purchases, with these buyers acquiring 34% of homes sold in the region this year, a substantial increase from the 13% recorded in 2014.
Conversely, Wales and the North East saw a decline in the proportion of first-time buyer purchases compared to the previous year. Despite being among the most affordable regions in Great Britain, improvements in affordability have had a lesser impact in these areas.
Overall, across Great Britain, there were 19 local authorities where first-time buyers comprised over half of all buyers this year. Of these, 15 were located in the South of England, including seven in London. A decade ago, Slough was the sole local authority where over half of homes were purchased by first-time buyers.
For the first time in over a decade, a majority (51%) of first-time buyers opted for homes with one or two bedrooms. This marks a shift from the previous year, where 49% preferred smaller two-bed homes, reflecting changing preferences amidst evolving market conditions. Additionally, the proportion of first-time buyers purchasing flats increased to 28% this year, up from 24% in 2022, indicating a reversal of the trend towards larger dwellings driven by post-Covid spatial preferences.
If the current pace of first-time buyer activity persists, projections suggest that Britain could see approximately 363,000 new homeowners in 2024, marking the highest figure since at least 2009. However, despite this surge in home purchases, affordability challenges persist. On existing trajectories, first-time buyers are projected to collectively spend £3 billion less on their first homes compared to 2021. Nonetheless, they are expected to incur £796 million more in mortgage repayments during their first year of ownership, largely due to higher interest rates.
A typical first-time buyer, securing a 90% Loan-to-Value (LTV) mortgage over 30 years, is anticipated to pay £13,977 in year-one mortgage repayments in 2024. This represents a £1,524 increase compared to 2021, underscoring the impact of rising mortgage rates on the financial burden borne by new homeowners.
