Rising house prices and type of loan increases will mean first-time buyers in 2023 face paying lb3,500 more on their house loans every year.
That’s according to a brand new report by estate agency group Savills, which says buyers face a ‘big barrier’ for you to get on to the property ladder within the next five years, with affordability more stretched than before.
The agency also predicts that the house price gap between your North and South of England will begin to close.
Here, we measure the report and consider whether now's the best time for first-time buyers to obtain a mortgage.
First-time buyers face stretched affordability
Savills predicts that the average first-time buyer home will cost lb205,000 in 2023, lb62,000 more than it cost in 2013.
Its new report, which is based on data from UK Finance and Oxford Economics, claims that higher house prices will mean first-time buyers may need household incomes close to lb50,000 in 2023, up from lb35,400 in 2013.
And in addition to struggling to raise enough for a deposit, people buying their first homes could face higher mortgage repayments.
Savills predicts that the Bank of England base rate, which is currently just 0.75%, could rise up to 2.75% by 2023, leading to a typical mortgage rate of 4.2%.
This could theoretically mean mortgages cost thousands of pounds more.
Lucian Cook of Savills says: ‘Within the next five years we expect the average annual first-time buyer's loan payment to rise by lb3,500 to a lot more than lb11,500, almost 24% of the annual income.’
The situation would be most keenly felt within the capital, where first-time buyers will finish up paying around lb19,000 annually in home loan repayments.
Are longer-term mortgages the answer?
Savills bases its calculations on the 25-year mortgage term, but we already have signs that first-time buyers are taking out longer mortgages.
A report released by UK Finance last year found that one in six mortgages was granted having a term of 35 years or longer, up in one in 15 about ten years ago.
Last month, we analysed which lenders provide the longest mortgage terms, and located that 34 banks and building societies claim that they can offer mortgage terms of as much as 4 decades.
However, whenever we contacted them, many of the larger lenders wouldn’t be drawn on the number of – if any – mortgages they had actually approved with terms beyond 35 years.
Is the time for you to obtain a 95% mortgage?
While the Savills research paints a bleak picture for first-time buyers, those who are in a position to buy can now obtain an attractive mortgage rate, even when they have a small deposit.
Which? research conducted earlier this year discovered that while mortgages were increasingly expensive for nearly all homebuyers, lenders were offering a greater number of deals for first-time buyers with 5% and 10% deposits.
As the table below shows, the mortgage marketplace for first-time buyers with 5% deposits has been buoyed by a 44.5% rise in products.
Number of mortgages available at 90% and 95% loan-to-value (LTV)
90% LTV | 95% LTV | |
November 2022 | 325 | 155 |
November 2022 | 385 | 224 |
Increase in no. of products | 18.4% | 44.5% |
This growth in the number of deals was along with a drop in rates. The cheapest initial rates for buyers having a 5% deposit dropped by 0.41% (two-year fixed-rate deals) and 0.3% (five-year fixes) in the space of a year.
Cheapest initial rates at 95% loan-to-value
Two-year fixed-rate | Five-year fixed-rate | |
November 2022 | 3.2% | 3.74% |
November 2022 | 2.79% | 3.44% |
Change in cost | -0.41% | -0.3% |
House price predictions around the UK
Of course, even if you can get a home loan at four or four-and-a-half times your annual income, you’ll still need to manage to find an inexpensive property, a feat that’s easier in theory in certain areas.
Overall, Savills predicts that house prices in the united kingdom will rise by 14.8% in the next five years, with cheaper areas such as the North of England, Wales and also the Midlands enjoying the biggest price growth.
The chart below shows that Savills believes traditionally expensive areas such as London and the South East of England will only see single-digit price increases between now and 2023.
When will house prices increase through the most?
So when should you purchase a house? Savills predicts that overall prices increases in the fastest rate in 2022, with 2022 likely to see only modest growth.
The agency says that house prices across the UK could rise by an average of 4% in 2022, with the North West enjoying chart-topping rises of 6%.
Region | 2022 | 2022 | 2022 | 2022 | 2023 |
North West | 3% | 6% | 4% | 3% | 4% |
Yorks & Humber | 2.5% | 5.5% | 4% | 3% | 4% |
Wales | 2% | 5.5% | 4% | 3% | 3.5% |
East Midlands | 3% | 5% | 3.5% | 3% | 3.5% |
West Midlands | 3% | 5% | 3.5% | 3% | 3.5% |
Scotland | 2.5% | 5% | 3.5% | 2.5% | 3.5% |
North East | 2% | 5% | 3.5% | 2.5% | 3.5% |
South West | 0.5% | 3.5% | 2.5% | 2.5% | 3% |
South East | 0% | 2% | 2.5% | 2% | 2.5% |
East of England | 0% | 2% | 2.5% | 2% | 2.5% |
London | -2% | 0% | 2.5% | 1.5% | 2.5% |
Personal advice on your mortgage options
If you’re hoping to purchase your first home and want advice on how much to save, when you buy, or which mortgage is better, assistance is available.
Which? Mortgage Advisers is experienced, independent mortgage advice service which you can call for a free chat, regardless of what stage from the home-buying process you’re at.
You can call the friendly team for advice on 0800 197 8461 or complete the shape below for a free call back.
Your home may be repossessed if you do not continue repayments on your mortgage.
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