The end of stamp duty relief isn’t the only cost going up for first-time buyers
First-time buyers (FTBs) are facing higher costs across the board as they grapple with not only high stamp duty fees, but a low stock of affordable houses, more stringent lending requirements and higher upfront costs.
First and foremost, stamp duty relief is set to end on March 31, which has driven a significant boost in the housing market at the start of the year as buyers try to avoid tens of thousands of pounds in fees.
In London, the median FTB purchase is set to tip over the threshold for paying stamp duty, meaning the average buyer needs to find an additional £6,250 – something only 15 per cent of FTBs in London can afford, according to a survey from Fairview Homes conducted last December.
Upfront costs like conveyancing, valuation fees and surveying have also risen above inflation in the last year – up 13 per cent, 45 per cent and six per cent respectively, analysis from Compare My Move has found.
With high house price growth and more stringent lending requirements, the average deposit for a FTB has risen by 327 per cent, from £13,490 in 2000 to £57,568 today, according to Savills.
However, income growth has not increased at the same pace, so typical FTB borrowing has increased from 2.24 times the average income to 3.22 times.
Head of residential research at Savills, Lucian Cook, said that higher costs for FTBs has been made worse by “sustained growth in older unmortgaged households” as well as an “inefficient occupying of the housing stock at our disposal”.
“Combined with a lack of housebuilding, and higher rental costs, has meant that the number of young adults living with parents has increased from 2.4m 25 years ago to 3.6m today,” he added.
What do higher costs mean for the market?
Remarkably, FTB demand in London remains robust. Last year, first-time buyers made up 48 per cent of purchasers in the city between January and June, the highest number since at least 2010, according to analysis by Hamptons.
It was a 41 per cent rise from 2023, and up 28 per cent from 2014.
There are a few ways FTBs are offsetting higher prices, particularly in London. The first is an increasing reliance on financial gifts, largely from families.
In 1995, just over a quarter of FTBs sourced their deposit from a gift or an inheritance. Last year, that figure was 40 per cent, and the year before it was 45 per cent, according to Nationwide.
Plus, the value of gifts and loans has risen rapidly, totalling £9.4bn in 2023 – nearly double that of 2018.
FTBs are also increasingly relying on long-term mortgages, which can stretch to terms of 35 years or more, as well as saving rent by living with parents. Some are simply accepting that a larger proportion of their income will go towards a mortgage.
Once on the housing ladder, FTBs must put aside about 37 per cent of their salary to meet their mortgage payments, well above the long-term average of 30 per cent, according to Nationwide.
Are costs about to fall?
Three areas could provide some relief for FTBs: lower mortgage rates, more houses, and a smoother buying process.
Mortgage rates are set to fall this year as the Bank of England lowers its base rate, reducing monthly payments.
Halifax, HSBC, and Clydesdale Bank all announced lower mortgage rates ahead of last week’s 0.25 per cent cut.
The Government also announced a plan for a fully digitalised home buying and selling process yesterday – February 9 – aiming to bring down delays to house-buying and bring down the £400m the UK faces annually in fall-through costs.
The policy is currently light on details, but could be “hugely helpful”, if it delivers something tangible and isn’t “watered down measures… or a halfway house”, director of buying agency Prime Purchase James Shaw said.
If the Government delivers on its pledge to build 1.5m houses by 2029, this too could make it easier to get on the first rung of the housing ladder – although even a successful policy (the likelihood of which has been heavily disputed) would take years to have an effect.
Given the seemingly unshakeable demand for housing, what’s more likely in the short term is that the current trends continue, and those unable to rely on financial gifts will be increasingly priced out of the market.