First-time buyer demand falls by 26% in October


An increase in mortgage costs caused first-time buyer demand to fall 26% in October. The figures, released from Rightmove, shows that overall buyer demand fell 20% last month compared with a year ago as increasing borrowing costs and economic uncertainty is causing property buyers to put their property searches on hold. This comes after The Royal Institution of Chartered Surveyors (Rics) showed last week that housing market demand in the UK fell at the fastest pace since 2020 and encountered one of the largest decreases in more than 20 years last month. The survey also showed that new buyer inquiries fell for the sixth month in a row in October – from a 36% drop in September to a 55% decrease in inquiries this past October which represents the lowest figure since the 2008 financial crisis. It is also now taking 18 weeks on average to sell a property, up from 16 weeks a year ago. Rics also predicted that the rental market will be affected as the imbalance of demand and supply of homes to let is set to push rents to be 4% higher in a year’s time.

The announcement of Liz Truss’ economic plan last month sent the financial markets into panic, which resulted in widespread repricing of the mortgage market. This led to chaos for people across the property spectrum as 40% of mortgage deals were pulled overnight causing many to abandon property purchases, as well as mortgage payments being increased for many existing homeowners. Mortgage deals with smaller deposits are now becoming scarce, causing first-time buyers more difficulty when trying to get onto the property ladder. Research from Moneyfacts shows that there were 137 mortgage offers at 95% loan-to-value at the end of October, 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 pushed 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 these 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. 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, comments on the current state of the UK property market:

“The announcement showing that prices stalled in October from Rics can be attributed to a sharp rise in mortgage rates which will dissuade new buyers in the UK property market – as shown in the figures released from Rightmove. The announcement of the biggest interest rate hike in more than three decades recently will continue to add strain to homeowners. We are seeing a new level of unaffordable house prices in the UK property market, and the property market is now becoming increasingly difficult to enter for first-time buyers. Even though the average price of a property is falling, the increase in mortgage rates and the decrease in availability of mortgages are significant problems. We all know the challenges the UK’s property market is currently navigating – 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 and worsening the issue of supply and demand. The affordability of mortgages has worsened and monthly payments soared following the mini-budget announcements, undoubtedly contributing to the fall we have seen in property prices in October. Despite the rising interest rates, I still see the main obstacle for first-time buyers being the ability to save enough money for a deposit.

“Renters will also feel the effects of the interest rate hike. They will find it more difficult to find available properties as landlords are set to experience higher mortgage rates which could deter them from renting their properties and look to sell instead. I think potential landlords will be more cautious when buying buy-to-let properties which will have a significant impact on the availability of homes in the UK.”