Everything you need to know: First time buyer trends in 2022

First-time buyers accounted for 53% of mortgage purchases in 2022.

This made them the largest demographic on the market – a rise from 50%.

What are the reasons for the rise and what does this mean for property investors? This blog post explains.

Who are first-time buyers?

First-time buyers are people that are buying their only or main residence, having never owned a freehold or have a leasehold interest in a residential property in the UK or abroad.

Most first-time buyer house purchases are completed using a mortgage. This is a loan which is taken out to buy property or land. These generally run for 25 years, but can be shorter or longer and need a deposit to obtain.

There are a range of government schemes available to help get first-time buyers onto the housing ladder.

What is the current first-time buyer trend?

First-time buyers currently represent 53% of mortgage purchases, the highest percentage since 1995.

According to money.co.uk, “In 2021, there were just under 409,000 first-time buyers in the UK, the greatest number in over 15 years. The coronavirus pandemic is thought to have played a role in this drastic 35% increase.

“The reasons for this unique trend are expected to include people having more time to save money during lockdowns, and the introduction of stamp duty relief.

“In 2006, there were 400,900 first-time buyers, but that number fell following the 2008 financial crisis. Since then, it has certainly rebounded, with the current peak at 408,379.

“This is a surprising recovery given that house prices in the UK have continued going up by 70% from £166,606 (May 2006) to £283,496 (May 2021). First-time buyers more or less make up exactly half of the overall sales in the UK, a figure which hasn’t changed in the year previous.”

What are the reasons for first-time buyer growth?

A number of additional factors also contributed to the rise.

Zoopla added, “Demand from first-time buyers was fuelled by a combination of high employment levels and low borrowing costs for much of the year.

“Low mortgage rates helped to offset the increase in average price paid for a home, which rose 10% from 2021 to 2022, to stand at £272,500.

“The total is also likely to have been boosted by first-time buyers rushing to take advantage of the government’s Help to Buy equity loan scheme before it closed to new applicants on 31 October 2022.

“The initiative enabled people to purchase a property with just a 5% deposit, which the government topped up with a 20% equity loan that was interest-free for the first five years.”

What are the predictions for the first-time buyer market in 2023?

Yorkshire Building Society did however estimate that first-time buyer numbers fell to 370,287 in 2022, compared to 405,320 in 2021.

The demand for new buyers was up roughly 5% on 2019 levels, which occurred before the pandemic. Before this, the last time that first-time buyer figures peaked above 400,000 was 2006.

However, the current issues in the economy mean that the upward trend of first-time buyers may not continue into 2023.

Rising inflation has been managed by rising interest rates from the Bank of England, and subsequently rising mortgage rates.

Fixed mortgage costs hit 14-year highs in October 2022, after the mini-budget forced borrowing costs to soar – more information about the mini-budget can be found here – however, the rate began to stabilise as Christmas approached.

Data from the Resolution Foundation, which was published in November, showed that the lifetime cost of taking out a mortgage is now higher than at any point since 1974.

The typical cost of a first-time home rose by 10% in 2022, or £25,621, to £272,500.

Nitesh Patel, an economist at Yorkshire Building Society, said that 2022 had started well for new mortgage deals, before tailing off as economic pressure had an effect.

He said, “Demand from first-time buyers remains strong, even with house prices being at historic highs for much of the year and the country experiencing such political and economic uncertainty.”

He added that this uncertainty could “prevent would-be borrowers from making such a significant purchase or cause lenders to tighten affordability.” This could lead to falls in first-time buyer numbers in 2023.

What does the first-time buyer trend mean for property investors?

The current market provides opportunities for property investors.

It is important when selling a property, for example when considering a flipping strategy, that the maximum target audience is considered, to therefore maximise interest in the property. It is important to consider this alongside other factors.

With a rising population and static supply for housing, the increased first-time buyer demand is contributing to a house price increase. This projects a positive investment for property investors in the longer term.

Should the number of first-time buyers not increase in 2023, this could mean that the competitiveness for properties decreases – allowing investors to benefit from properties that are better value for money and/or easier to purchase what they are looking for.

A fall in first-time buyer demand could also mean an increase in the buy-to-let audience, increasing the demographic size of renters for buy-to-let investments.

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