Struggle for First Time Buyers

Author: Samuel Beckingham
Updated: May 03, 2023
4 minutes read

Property developer Persimmon has noticed a real issue for first time buyers in the housing market. This news comes after sales have been picking up again, after a 42% decrease in the number of their homes sold in the first quarter of 2023 compared to 2022. Due to the fact that interest rates have been high and mortgages have been a lot less affordable, first time buyers have been finding it more and more difficult to afford their own property. The market and wider economic situation has not been kind on first time buyers in particular.

Areas with higher house prices now come with a larger loan to value (LTV) ratio. This is simply the percentage of what is borrowed as a mortgage compared to how much the deposit is. Good deals are considered to be 60% or below, while current LTVs can be above 80%, which come with even higher interest rates. This costs mortgage owners much more in the long run, spending even longer paying off their home to the bank or building society.

Interest rates are likely to rise even higher as the Bank of England is expected to increase the Bank Rate to 4.5% this month. As inflation has remained over 10% for some time, it’s hoped that these interest rates will calm the markets. However, as the Bank of England is looking to intervene for the 12th time in a row, Persimmon has stated that housebuilders will find it very hard working through the rest of the year. Conditions are worsening and consumers are tightening their belts, so it's expected that fewer buyers will be in the market for new build properties especially.

Profits for some of the largest UK developers, like Persimmon, are predicted to fall. With interest rates going up again, the housing market is likely to cool as well, so first time buyers will be even worse off than they already are. Despite the grim outlook, it’s reassuring to see that recent weeks have been good for the developer. Persimmon started seeing more consumer confidence, with renewed interest in its three to five bedroom properties. Despite the economic downturn, buyers still have reasons to move home, so property sales will still go through, just at a reduced rate.

Compared to 2022, the developer has seen more visitors, levelling amounts of cancellations and increased sales levels. Since the start of 2023 has been a bit of an unsteady climb for the housing market, it’s encouraging news that Persimmon has extended its forecast to 8,000-9,000 completions this year. This was previously considered a best estimate on past occasions. After struggling through the effects of the pandemic, property developers were only just starting to recover. Now there's a new danger on the horizon.

The average home from Persimmon is now at £276,000, down from £282,100 seen last year. They are adamant that their pricing remains firm in a market that is increasingly robust, especially in the long term as demand is always present. Despite it being hard to predict how the market will fare this year, Persimmon is in a good stead seeing as its sales position has gone up to £1.7 billion from the £1 billion seen in January.

Rightmove, the real estate property portal, discovered that asking prices are at record highs for first time buyers, even when less affordable mortgage rates have been on offer. In the housing market, first time buyers are considered essential for maintaining its survival. This is because they often precipitate links to other buyers and sellers, having got their feet onto the property ladder. As they are really struggling, it could be an indication of things to come for the rest of the year.