It is without a doubt that first-time buyers are facing many struggles to get onto the property ladder and have been facing these obstacles for some time now.

These have been particularly amplified in the past few months, but many are questioning whether these residential property struggles will worsen or improve in the coming year.


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What struggles are first-time buyers facing

The two main struggles for first-time buyers recently are:

Increases in house prices 

In November 2022, the average house price was £295,000, according to the Office for National Statistics, with the average salary being approximately £33,000.

To save for a 10% deposit, an average first-time buyer buying an average house will have to save just under a year’s gross salary. Saving this much is already a great challenge, especially with the rising cost of living and rising inflation, which in October 2022 hit 11.1%.

The first-time buyer’s market was extremely busy in 2022. The number of first-time buyers was lower in 2022 than in 2021, but it was the next highest year since 2006.

Increase in mortgage rates 

Over the past few months, the bank rate has been rising, currently sitting at 4% as of February 2023. The increasing bank rate has increased mortgage interest rates, making mortgages unachievable for some first-time buyers, with interest rates reaching 6%. 

Many first-time buyers are now dissuaded from buying a home due to such factors, meaning that demand is falling, suggesting that prices of homes should decrease.

Prices are still, however, holding out high due to limited supply. Coupled with steadily increasing rent prices, the struggle to save for a deposit remains difficult, with less available to go into savings at the end of the month.

The supply of houses is likely to remain low, with homeowners who were previously potentially willing to sell their homes likely to be holding them now due to the high inflation, awaiting a more stable level of inflation before selling their homes. 

First-time buyers were once considered attractive buyers as they do not buy in a chain, but now with difficulties obtaining a mortgage, first-time buyers may not be as attractive as they were once thought to be. 

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Stamp Duty Land Tax changes

However, some good news was announced in September 2022 regarding Stamp Duty Land Tax. First-time buyers already benefitted from some relief from stamp duty, but the threshold at which a first-time buyer would start to pay the tax was increased in line with the increase in house prices.

If you qualify for first-time buyer’s Stamp Duty relief, no Stamp Duty is paid when you buy your first property so long as this does not exceed £425,000. After this, Stamp Duty is payable at 5% between £425,001 and £625,000.

Different rules apply for those moving home, but this is still beneficial as the nil-rate tax threshold at which you start paying tax has increased from £125,000 to £250,000.

The first-time buyer’s market was surprisingly busy in 2022, given the housing affordability and mortgage struggles, which may be due to the increase in Stamp Duty Land Tax relief.

Buyers who had earmarked funds for stamp duty have now found themselves with more in their pocket towards a deposit.

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What is to come in 2023?

There is speculation that 2023 will likely be a much tougher year for the housing market than 2022. It is expected that house prices will fall in the coming year, and this will most likely dampen the spirits of home buyers and sellers.

The mortgage market is also mindful of the drop in house prices and is most likely to be less eager to lend at higher loan-to-value ratios than they were this time last year.

Mortgage lending criteria are also more robust, making it harder for all, particularly first-time buyers, to secure a mortgage. On the other hand, falling house prices may open the market to first-time buyers as it will mean they can get more property for their money.

Mortgage rates are continuing to rise. Although they are down from their post-mini-budget high, it is still expected that the bank rate will rise in the first half of this year.

The latest Bank of England Credit Conditions Survey reported that lenders expect mortgage spreads to widen in the coming three months, and wider spreads imply higher mortgage rates.

It is uncertain what 2023 does have in store for first-time buyers, and there are many questions – will first-time buyers wait to buy if the prices are dropping? Will first-time buyers want to commit to a mortgage while living costs rise?

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Contact Our Residential Property Team

At Myerson, we have a committed team of residential property solicitors ready to deal with your property purchase, whether you are buying your first home or moving up the ladder. We know how exciting yet nerve-wracking this time can be, so we are here to help with every step of the way - contact us at:

0161 941 4000