Why all is not lost for first-time buyers

Houses on the shelf

Over a quarter of young people are priced off even the lowest rungs of the property ladder despite falls in house prices, new research reveals.

For some time first-time buyers have struggled to buy property because of soaring house prices. However, research from data provider Hometrack shows that higher mortgage costs are now the main reason why many are unable to achieve their homeownership dreams.

The average mortgage costs for first-time buyers increased by 12% last year. In areas such as London and the South West, this had led to over 40% of first-time buyers being priced completely off the property ladder.

Mortgage rates for first-time buyers have risen to over 6% since the credit crunch hit last year, but Richard Donnell, a director at Hometrack, believes that the lack of available products is would-be buyers’ biggest barrier.

For example, the fact that lenders now demand deposits of at least 10% has added around £1,000 to the cost of getting on the ladder.

“At the same time, a major decline in the volume of homes for sale and falling levels of new supply are likely to support over-stretched affordability levels in the near future,” Donnell adds. “Until such time as mortgage rates start to fall then lower house prices will be the only real driver of improved affordability for first-time buyers.”

Hope on the horizon?

The good news is that 20% of those currently priced out of the market will be priced back in if house prices fall by 10%, as predicted by some commentators.

In addition, the research suggests that 75% of first-time buyers are still able to get a foot on the ladder.

While there is no doubt that is it currently harder for people to buy their first-time home, it is not yet impossible for them to do so.

There is still hope for first-time buyers - find out Moneywise editor Rachel Lacey's advice for getting a foot on the ladder.