The surge in rental costs is compelling first-time buyers to reconsider their property expectations, prompting a shift towards smaller homes, reports Skipton Building Society. Charlotte Harrison, the society’s CEO of home financing, observes that the substantial changes in the market, coupled with rising rents, have led many first-time buyers to adopt a more pragmatic approach, aligning their choices with what is financially feasible for them.
A recent study by the society highlights that 70% of individuals aspiring to become first-time homebuyers are open to making compromises in order to step onto the property ladder. The factors most commonly considered for concessions include garden size, location, and the number of bedrooms.
In a survey of 1,000 adults planning to make their initial home purchase within the next three years, it was found that 42% of respondents are willing to forego a larger garden to achieve homeownership. Additionally, 37% expressed their readiness to accept a location farther from their initially desired area.
Internal data from the Skipton Group, encompassing entities like Skipton Building Society and Hamptons Estate Agents, indicates that first-time buyers constituted over 25% of the housing market in 2023. This figure represents a significant growth of 5% since 2020, a notable trend given the challenging backdrop of the pandemic, economic downturn, and tough market conditions.
Aneisha Beveridge, Head of Research at Hamptons, highlights the advantageous position of first-time buyers who successfully navigated the challenges posed by higher interest rates throughout 2023. In the midst of a tough and competitive market, these buyers, unburdened by the necessity to sell an existing property, find themselves prioritized over competing offers, even if their bid falls slightly below others. This newfound prominence in the homebuying queue enables first-time buyers to extract more value for their investment, particularly those equipped with substantial deposits.
The surge in new buyers entering the market is attributed to the pronounced escalation of rental costs. Paradoxically, these rising rents contribute to making the comparatively modest increases in mortgage rates appear more palatable to aspiring homeowners. As a result, first-time buyers who weathered the economic challenges of 2023 now stand at the forefront of the home-hunting landscape, securing homes more efficiently and cost-effectively compared to the previous year.
“However, as mortgage rates are expected to continue their decline, it is anticipated that a more significant number of individuals planning to move will re-enter the housing market in 2024.”
According to research conducted by OnePoll, 34% of respondents expressed the expectation of owning a semi-detached property as their first home, surpassing preferences for flats (25%) and terraced houses (21%). Notably, those intending to buy in London were more inclined towards flats, with 38% favoring this property type compared to 26% for semi-detached homes.
Data from Skipton Building Society and Hamptons indicates a shift in the geographical distribution of first-time buyers, with more individuals from London and the southern regions entering the market this year, while there has been a decline in the number of first-time buyers in the north of England and around Yorkshire over the past 12 months.
Harrison continues: “With many buyers realising it’s better to step onto the property ladder with a smaller starting point of a property than hanging onto the idea of waiting to own something much bigger, especially if they’re paying escalating rents. That being said, people trapped in renting remains one of the UK’s biggest housing challenges, with increasing rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – making it almost impossible for people get onto the property ladder.”
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