The Struggles of First Time Buyers & How to Overcome Each
Buying a home is a big milestone in life, but for first-time home buyers in the UK, the process can be a real struggle. Let’s take a closer look at some of the challenges they face.
First-time home buyers in the UK face significant challenges, including:
- High house prices
- Large deposit requirements
- Stiff competition for available properties
These factors make it difficult for young people to get on the property ladder, and many are forced to turn to family or friends for financial assistance.
To highlight the plight faced by first-time home buyers, we’ve designed the below infographic:
Below, we outline in written format the content that appears in the above infographic.
The Challenges faced by first-time buyers
The above infographic outlines nine specific challenges faced by first-time homebuyers. We list each of these challenges below:
1. Affordability:
The average house price in the UK is £290,000 as of 2022. [1]
In London, the average house price is £496,269, making it the most expensive region to buy a home in the UK. [2]
The average salary in the UK is just £29,600 per year. [3]
The most common mortgage term in the UK is 25 years, but it’s not uncommon for some borrowers to choose a term of 30 or even 35 years in order to keep their monthly payments lower.
2. Deposit:
Deposits are a key requirement when purchasing a property in the UK. Most lenders require a minimum deposit of 5-10% of the property’s value, which can be a significant amount of money for first-time buyers.
The average deposit for a first-time buyer in the UK is around £58,986. [4]
40% of first-time buyers have to borrow money from family or friends to afford the deposit. [5]
Renting costs, student debt, limited Government support and the high cost of living all make saving for a deposit difficult.
The average deposit for a first-time buyer has risen by 52% in the past decade, while wages have only risen by 17% over the same period. [6]
3. Conveyancing Fees:
Conveyancing fees are the costs associated with transferring ownership of a property. These fees can include solicitor fees, search fees, and other charges. In the UK, conveyancing fees can cost between £850 and £1,500. [7]
The cost of conveyancing can be a significant expense for first-time home buyers, adding to the overall cost of purchasing a property.
4. Home Condition & Renovation Costs:
Many first-time buyers in the UK are looking to purchase older, more affordable properties. These properties may require significant renovations and repairs, which can be costly and time-consuming.
Additionally, some older properties may have issues such as damp, subsidence, or other structural problems that can be difficult and expensive to fix.
5. Location:
Location is a key factor for many first-time home buyers in the UK. Properties in desirable locations such as city centres or close to good schools can be more expensive and may be out of reach for some buyers.
Additionally, properties in more remote or rural areas may be cheaper, but may require longer commutes or have fewer amenities.
6. Economic Uncertainty:
Economic uncertainty can be a significant concern for first-time home buyers, particularly during times of recession or other economic downturns.
Job security and income stability can be important factors in determining whether a buyer can afford to purchase a property and make mortgage payments over the long term.
7. Credit Scores:
Credit scores can play a crucial role in obtaining a mortgage in the UK. A poor credit score can result in higher interest rates or even a rejection of a mortgage application.
This can be particularly challenging for first-time buyers who may not have an extensive credit history or have had issues in the past.
8. Gazumping and Chain Breaks:
Gazumping is a practice in the UK where a seller accepts a higher offer from a different buyer after agreeing to sell the property to another buyer.
This can be a significant challenge for first-time buyers, who may have limited funds and be more vulnerable to losing out on a property they have invested time and money into.
9. Hidden Costs:
There can be a number of hidden costs associated with purchasing a property in the UK, including survey fees, mortgage arrangement fees, and removal costs.
These additional expenses can add up quickly and make it more difficult for first-time buyers to stay within their budget.
Sources of Help to Overcome These Challenges Faced by First-Time Buyers
Below, we outline sources of help to help you or a loved one overcome the above challenges faced by first-time buyers.
1. Stamp Duty Relief:
First-time buyers are exempt from stamp duty on properties up to £300,000, and pay a reduced rate on properties between £300,000 and £500,000. [8]
2. Help to Buy/First Homes Scheme:
The UK government’s Help to Buy scheme provides equity loans to first-time buyers to help them purchase a new build home. The scheme was introduced in 2013 and has helped over 270,000 people buy a home. [9]
The scheme is due to end in March 2023, and will be replaced by a new scheme called First Homes, which will provide discounted homes for local people. [10]
3. Starter Homes:
The government has pledged to build 200,000 new homes specifically for first-time buyers by 2020.
These homes will be sold at a discount of at least 20% below market value, making them more affordable for first-time buyers.
4. Shared Ownership:
Shared ownership allows buyers to purchase a share (usually between 25% and 75%) of a property and pay rent on the remainder.
This can make it more affordable for first-time buyers to get on the property ladder, particularly in areas where property prices are high.
5. Guarantor Mortgages:
A guarantor mortgage is a type of mortgage where a family member, usually a parent, acts as a guarantor for the loan.
This can help first-time buyers who may not be able to secure a mortgage on their own due to a lack of credit history or a small deposit.
6. Family Deposit Mortgages:
Some lenders offer family deposit mortgages, which allow first-time buyers to use a family member’s savings as collateral for the mortgage.
This can help first-time buyers who may not have a large enough deposit on their own.
7. Help from Local Authorities:
Some local authorities offer their own schemes to help first-time buyers get on the property ladder.
These may include shared equity or shared ownership schemes, or other initiatives to help first-time buyers purchase a home in their area.
8. Mortgage Brokers:
Mortgage brokers can help first-time buyers navigate the mortgage market and find the best deals.
They can also help buyers understand their options and eligibility for various schemes and initiatives.
9. Discounted Mortgages:
Some lenders offer discounted mortgages to first-time buyers, which may offer a lower interest rate or reduced fees.
These mortgages may have specific eligibility criteria, such as a certain credit score or income level.
10. ISA and Lifetime ISA:
The government offers tax-free Individual Savings Accounts (ISAs) and Lifetime ISAs, which can be used to save for a deposit on a home.
These accounts offer a bonus payment from the government, which can help first-time buyers save more money towards their deposit.
11. Help from Employers:
Some employers offer help with housing costs as part of their employee benefits packages.
This may include shared equity or shared ownership schemes, or other initiatives to help employees purchase a home.
12. Peer-to-Peer Lending:
Peer-to-peer lending platforms connect investors with borrowers, and can offer an alternative to traditional mortgages.
This can be a good option for first-time buyers who may not be able to secure a mortgage through traditional channels.
References
[1] https://www.gov.uk/government/news/uk-house-price-index-for-january-2023
[2] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/february2021
[4] https://www.moneysupermarket.com/mortgages/first-time-buyer-mortgages/
[6] https://www.resolutionfoundation.org/app/uploads/2021/12/Hope-to-buy.pdf
[7] https://www.moneyadviceservice.org.uk/en/articles/how-much-should-conveyancing-fees-cost
[8] https://www.gov.uk/guidance/stamp-duty-land-tax-relief-for-first-time-buyers
[9] https://www.gov.uk/government/publications/help-to-buy-equity-loan-scheme-statistics-april-2021
