First-Time Buyers Face Record Prices as UK Housing Market Recovers

Terraced houses in southeast London on Jan. 13, 2023. (Daniel Leal/AFP via Getty Images)

First-time buyers in the UK are facing record high prices as the housing market recovers from the COVID-19 pandemic and increased borrowing costs following last year’s mini-budget fiasco.

The average price tag on first-time buyer homes—houses and flats with a maximum of two bedrooms—hit a record high of £224,963 ($279,830) in April after edging up by 0.2 percent month-on-month, according to property website Rightmove.

The website said that the first-time-buyer sector has been “leading the recovery to pre-pandemic sales levels,” with sales volumes now 4 percent higher than in March 2019.

By contrast, the sectors with larger homes—the second-stepper and top-of-the-ladder sectors—are still 4 percent and 3 percent behind the 2019 levels, respectively.

Releasing its “House Price Index” (pdf) on Monday, Rightmove said that “solid buyer demand” in the first-time buyer sector is now 11 percent higher than in the same period in 2019.

It illustrates “continued strong desire from would-be first-time buyers to own their own home” despite “the economic headwinds that have made taking out a mortgage more expensive and saving up for a deposit even more challenging,” said the website.

It can be partly explained by “the fiercely competitive rental market, with soaring rents reaching new records and making buying compelling for those who can raise the deposit and obtain a mortgage.”

Meanwhile, average mortgage rates—which rose significantly following the so-called “mini-budget” announced by former Chancellor Kwasi Kwarteng in September last year—have been falling over the last few weeks, with lenders competing to capitalise on the strong demand from first-time buyers.

The average mortgage rate for a five-year fixed-rate, 15 percent deposit, mortgage is currently 4.46 percent, with the lowest rate for this mortgage type standing at 4.19 percent. This has edged down from an average of 4.65 percent a month ago, though it is still much higher than the average rate of 2.64 percent at this time last year.

‘Positive News’

Tim Bannister, Rightmove’s director of property science, said: “The first-time-buyer sector typically accounts for over a third of all sales, which are often the start of chains, so these positive sales agreed figures are good for the health of the whole market.

“The current multi-speed market is highlighted by sales of larger homes continuing to lag behind, with some sellers in the upper sectors likely needing to show a greater degree of pricing restraint to attract buyers in this much more price-sensitive market.

“More competition amongst lenders in the smaller deposit, higher loan-to-value ranges is positive news for those would-be first-time buyers who have saved up their deposit and can still afford to move.

“However, it remains a challenging environment to get onto the ladder, with new record average asking prices and higher borrowing costs to budget for than a year ago.”

Bannister said there are more properties available on the market now, but warned would-be buyers not to wait around too long.

He said: “Buyers may have struggled to find a home that suited their needs in the stock-constrained market of recent years and will now find more choice available.

“However, those who have now decided to make a move should not wait around too long to make an inquiry if they see the right home for sale, as not only is the number of sales agreed now back to pre-pandemic levels, but homes are also on average selling 12 days more quickly than at this time in 2019.”

‘More Confidence’

Karl Tatler, managing director at Wirral-based Karl Tatler Estate Agents, said he has seen a “real turning point” after a difficult start to the year and following the turbulence of the last three months of 2022.

“Our big focus currently is helping our clients to understand the market conditions, which are changing so quickly,” he said.

“Available stock has now ‘normalised,’ providing an increased choice of properties for buyers and our new and existing clients are having to respond by listing their homes at more competitive prices to stand out from the crowd,” he added.

“The great news is that both buyers and sellers appear to have adapted and accepted the current economic and property market conditions. There are now more attractive fixed-rate mortgages available, providing buyers with more confidence, and there has been a noticeable increase in sales activity.”

Ben Rose, director at Lancashire-based Ben Rose Estate Agents, said: “We’re seeing locally that the number of new instructions and sales agreed is the highest it has been for several months, and while this is not the very high level they were during the pandemic years, they are high compared to before the pandemic.

“This upturn also suggests the economy is far stronger than expected and this is reflected in the buyer’s confidence in the market. We’re hoping these increased numbers will now become the new norm, which appears to be the case given the consistency of them this year.”

PA Media contributed to this report.