Fewer mortgage deals with smaller deposits causing first-time buyers more difficulties
Fewer mortgage deals with smaller deposits are on offer, causing first-time buyers more difficulties when trying to get onto the property ladder. Research shows that there were 137 mortgage offers at 95% loan-to-value on Monday, compared to 347 at the start of 2022, with the largest number of deals (583) from lenders for 75% loan-to-value mortgages. The announcements made in the infamous mini-budget caused chaos in the property market pushing mortgage interest rates to 14-year highs – with the average two and five-year fixed rates climbing to 6.65% and 6.51% respectively, but have since begun to fall. Mortgage rates have been rising continuously for months as central banks try to tackle rising inflation – currently standing at 10.1% in the UK.
Former chancellor Kwasi Kwarteng said that focusing on increasing economic growth was one of his top two priorities with several plans announced in the mini-budget intending to aid the UK property market and in particular, first-time buyers. Plans to cut stamp duty were announced in order to aid economic growth by allowing more people to move homes and provide first-time buyers with a better chance to get on the property ladder. However, these seem to have backfired as mortgages are becoming increasingly harder to obtain for first-time buyers. Moneyfacts said the number of all types of mortgage deals available in the UK had recovered slightly to 3,067, but still represents a substantial decrease from 3,961 on the morning of the mini-budget.
Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing that the average home sold in England cost the equivalent of 8.7 times the average annual disposable income – which is the worst affordability ratio in England since records began in 1999. Further data released from Rightmove shows that the average UK house price now stands at £367,760 – rising 0.7% month-on-month in September. House sellers have continued to raise their asking prices despite Brits facing higher interest rates and a cost of living crisis. For many Brits, getting onto the property ladder is now an unachievable dream, with an unprecedented level of demand causing a severe undersupply of housing which the industry has been suffering from for the past few years.
David Hannah, group chairman of Cornerstone Tax provides some expert insight: “We all know the challenges that Liz Truss was facing and the new leader will be facing regarding the UK’s property market – inflation and rising interest rates are causing a whole raft of issues. We’ve seen a surge in building costs and building materials which is slowing down construction. At the same time, the affordability of mortgages has worsened and the news that the average rate on a two-year fixed mortgage has risen above 6% will inevitably impact first-time buyers, but also will have knock-on effects for anybody on a variable rate mortgage. Finally, it will lead to a slowdown in construction which will exacerbate the undersupply of UK property. So, whilst prices might flatten and the rate of growth may slow, I don’t expect property prices to fall.
“The fall of the pound has made the market very welcoming for foreign investors which I think will continue to drive the UK market. There is also a supply problem in the UK property market which rising mortgage rates aren’t going to solve. Therefore, I don’t think we will see a property market crash, I think that come December 2023 we will still see an increase of around 5% in property prices.
“The cut in stamp duty that’s been announced and has not been removed, unlike other changes made in the mini-budget, hopes to provide first-time buyers with a better chance to get on the property ladder. However, the announcements made in the mini-budget have pushed mortgage rates to new highs, making it a more difficult environment for first-time buyers. With properties in the UK standing at the most unaffordable levels ever, the new leadership must consider any changes diligently before making them.”