Being a first-time buyer hasn’t been this tough for 70 years, a Building Societies Association (BSA) report has found.
Many prospective homeowners feel trapped, with rents increasing by 9.2% on average in the 12 months to February 2024, making saving for a deposit seem impossible. The shortage of affordable housing pushing prices up makes it harder to get a foot on the ladder.
For the past two years interest rates climbed steadily before sticking at the now 16-year high of 5.25%. Housing market headlines may not be helping either, with predictions of a crash followed by rumours of a boom creating confusion among would-be homebuyers.
In the long run, owning your own home can offer major financial benefits over renting, but leaping into home ownership in the current climate can be daunting. We asked property experts why becoming a homeowner in 2024 could ultimately pay off.
Now might be as good a time as any
Getting your finances in order is one of the most important factors in homebuying. Before taking on your own property, you’ll need to be confident you can cover all of your financial obligations – from grocery bills to nursery fees – on top of making monthly mortgage repayments.
Waiting for the ‘perfect’ economic or market conditions may not give you any financial advantage in the long term. In fact, if interest rates start to come down later this year, property experts think house prices may rise as buyer demand increases.
Experienced property consultant, Simon Gates, told NerdWallet UK, “You can’t get a cheap house with a cheap mortgage. Buyers will either pay higher house prices or more for their mortgage, with interest rates dictating affordability”.
Given this ‘swings and roundabouts’ situation, Gates encourages first-time buyers to stop watching the housing market and just hop on. “People use so many excuses to hold off; from Brexit and COVID to the election”, says Gates, but “if you can afford it and it makes sense, do it.”
Rather than fixating on headlines about what the housing market will do next, focus on your budget and use a free mortgage calculator to see what repayments you can afford.
Jump in and stick with it
Mortgage rates may not drop below 4% in 2024, but the sooner you get onto the property ladder, the sooner you’ll have an appreciating asset, creating more financial security for your future. “Don’t try and time the market. It’s time in the market [that matters],” says Gates, who thinks first-time buyers should be prepared to hold onto a property long enough to see the benefit of house price growth.
For many, homeownership is a long-term investment, something younger buyers can struggle with. Sally Mitchell, a senior mortgage broker at The Mortgage Mum, says younger homebuyers “can’t imagine being 40” let alone being able to weigh up how buying a property now could impact their finances in later life.
Forecasts vary about what will happen to UK house prices in the next few years, but, based on decades of data, it’s reasonable to expect a home you buy at age 30 to be worth more when you reach retirement age. Along with becoming a successful saver, becoming a homeowner can be a cornerstone of your financial future.
Pool resources with a partner
Relative to earnings, houses in the UK have not been this expensive since the 1870s. This ratio is a key factor in why being a first-time buyer in 2024 feels tough. However, Gates points out that when Generation X and the Baby Boomers first got on the property ladder sole-earner households were much more common. “The house price to earnings ratio was a lot better then, but it was really only one income. Whereas for a lot of first-time buyers today, it’s dual income”, Gates explains.
While you might be keen to start your homebuyer journey solo, waiting to take this step with a partner could put you in a stronger financial position. A total of 63% of first-time mortgages were taken out in joint names last year, up from 58% in 2022. Two incomes make it easier to borrow, and if you combine your savings to put down a bigger deposit, your loan-to-value ratio will be lower, which may mean you can access cheaper rates.
“Most first-time buyers are buying as a couple because house prices are so high that on one person’s salary, you haven’t got a hope to do it. And also, obviously doubling up deposit does help,” says Mitchell.
Factor in family plans before you fix
A first home could quickly become too small for a growing family – a consideration for first-time buyers locking in a mortgage deal.
Buying as a couple may be easier than as a single person, but things get more complicated when you add in dependents. Having young children can “knock your affordability”, says Mitchell, who sees households with children limited on mortgage options due to greater financial commitments, like childcare costs.
Affordability may be more of a challenge if one partner takes parental leave or works part-time. “I get a lot of people coming to me whose mortgages are coming up for renewal. There’ll be a better rate out there, but they will fail affordability because the mother is not working,” says Mitchell.
Fixing a five-year deal might seem like the best bet while you have no dependents. However, if you’re planning to start a family, the flexibility to move to adjust your repayments sooner might be important. “Think about what is going to change in your life and what your financial commitments will look like,” advises Mitchell.
Don’t be too proud to accept help
Even those who’ve stashed some cash may still need help from ‘the bank of mum and dad’ to get on the housing ladder.
If a financial gift is not an option, moving back into your family home is a common alternative, though it can cause tensions, even among the closest families. You may still have to contribute towards household expenses, but taking rent out of the equation could help boost your savings. Mitchell recently helped a couple aged 25 and 27 to secure a mortgage on their first home. “They both moved back home to live with their respective parents to save up the deposit…they had £50,000 saved up and it took them three years,” she said.
Even if you move back home to save, you’ll still need a good credit history to get the best mortgage deals when the time comes. So, it’s a good idea to register to vote and have some bills in your name at your parents’ address.
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