First-time buyers have been forced to find, on average, an extra £23,000 to purchase a home since the start of the pandemic, thanks to runaway house price increases.
Nearly 60 per cent of those getting on the property ladder said they had to save up more than they initially planned, and almost half had at least one house purchase fall through – costing them wasted fees.
This was according to a new survey by the bank and specialist mortgage lender, Aldermore.
Long way home: First-time buyers have had to save for longer to achieve their home ownership dreams, as the typical price of a property has rocketed during the pandemic
Since March 2020, it said the average deposit paid by first-time buyers was £62,572, and that buyers paid an average of 18.6 per cent of the property value upfront.
And in further evidence of their squeezed finances, more than half of buyers said they had to leave their home empty for a few months because, having spent so much on their deposit, they could no longer afford furniture.
House prices have risen by £15,500 in the past 12 months alone, with the South East and South West recording growth of more than £22,000, according to the latest house price index from Zoopla.
The process of buying a home became longer and more complicated for many during the pandemic, which also led to first-time buyers racking up more fees.
In the Aldermore survey, first time buyers said their purchase was delayed by an average of three months, with one in six being delayed by five months or more.
This was initially due to Covid-related disruption, and later due to the mass of buyers that descended on the market following the announcement of a stamp duty holiday, which lasted from July 2020 until the end of June 2021.
This led to professionals such as surveyors, mortgage brokers and conveyancers having huge backlogs of work, which slowed down completions.
The process of buying a home became longer and more complicated during the pandemic
Cory Askew, head of sales at Chestertons, says: ‘The sheer volume of transactions at the end of June created a bottle-neck that delayed deals and unfortunately scuppered plans for those that needed the saving to get on the ladder.’
Transactions were also more prone to falling through, both because of these delays and because the hot market led to gazumping from rival buyers.
Mortgage brokers agreed that it had been a tough time for first-time buyers.
Samantha Bickford, managing director of The Mortgage Girl at Ocean Mortgages, said: ‘They are the lifeblood of the property market, however this year has been the toughest I can remember for first-time buyers.
We have been counsellors as well as mortgage brokers in 2021
Samantha Bickford, mortgage broker
‘Having to raise higher deposits, being gazumped and mortgage offers taking longer to arrive than ever has really affected the mental health of many.
‘We have been counsellors as well as brokers in 2021, which is sometimes part of the job, but more so this year.’
Aldermore’s survey found that 40 per cent of first-time buyers made two or more offers ahead of securing their home, stretching out the process and raising costs.
Nearly half of buyers had at least one purchase fall through.
When this happened, it cost them an average £2,403, in wasted fees – though with one in nine (12 per cent) spent £4,000 on a failed attempt to buy a home.
These extra barriers and costs meant that 48 per cent felt they did not get the home they wanted because they had to compromise so much to get on the housing ladder.
The stress of the house buying process also affected people’s personal lives, with 46 per cent saying that the process caused issues in their relationship.
Despite the large costs, brokers were keen to point out that Aldermore’s figures were national averages, so people in some parts of the country could pay much less.
Scott Taylor-Barr, a financial adviser at Carl Summers Financial Services, had this message for first-time buyers: ‘Aldermore’s research has certainly raised some interesting points, but please don’t get too anxious about buying your first home.
‘Whilst some of these numbers look big, they are national averages and a lot of the costs associated with buying a property are directly related to the value of it – so the costs are likely going to be very different depending on whether you are buying in Belgravia or Bolton.’
Additional costs of buying a home
Although saving a deposit is usually the biggest barrier to buying a first home, additional costs such as mortgage arrangement fees, paying a solicitor and hiring a removal firm can also run into the thousands.
Aldermore asked first-time buyers what they spent on fees, and found that solicitors’ costs took the biggest chunk out of their budget at an average of £767.
First-time buyers spend an average of £767 on their solicitor, while mortgage arrangement and brokerage fees are the next biggest cost at £611 followed by conveyancing at £577
Despite the hurdles, Jon Cooper, head of mortgage distribution at Aldermore, claimed first-time buyers usually said the stress and cost of buying a home was worth it.
‘Becoming a home owner is a wonderful step forward in a person’s life but our research shows the persistent effects of the pandemic are causing high levels of financial challenges in the journey,’ he said
‘While costs and complicated processes may feel daunting, we’ve found first time buyers are glad they did it, with 78 per cent saying the stress was worth it to find a home.
‘I would advise would-be buyers to plan carefully to ensure they are prepared for the range of costs involved and to seek a broker who can be a great help in cutting through the jargon and guiding you through the process.’
Opinium surveyed around 2,500 actual and prospective first-time buyers on Aldermore’s behalf in September 2021.
Will things get easier for first-time buyers?
Those getting on to the housing ladder have been at a marked disadvantage since the beginning of the pandemic.
Although house prices have shot up for everyone in the market, homeowners moving house are often not as severely affected.
This is because they can use equity in their existing home – which has probably also gone up in value – to put down the higher deposit for their new one.
Now the stamp duty holiday has finished, some experts say the housing market is beginning to calm down, and that prices will stop increasing at such a rapid rate.
Jonathan Harris, managing director of mortgage broker Forensic Property Finance, says: ‘The frenzy of the past few months seems to have calmed a little, which should mean first-time buyers are not at risk of being priced out to the same extent if they delay their move.’
However, there are also suggestions that the supply of new properties coming to the market remains much smaller than the number of buyers searching, which could serve to keep competition high.
There were an average of 511 buyers registered per estate agent branch in October, according to the latest figures from industry body Propertymark – a 12 per cent increase on the previous month.
However, there were only 21 available properties for them to buy – the equivalent of one home for every 24 buyers.
There is better news to be found in the mortgage market, where the price and availability of mortgage deals for first-time buyers has improved hugely since the pandemic’s early days.
Lenders pulled their low-deposit products out of caution in spring 2020, before drip-feeding them back to the market over many months at high rates.
In October 2020, the average two-year fixed rate on a 5 per cent deposit mortgage was 4.74 per cent, according to Moneyfacts.
But today, rates are falling for first-time buyers – even as they start to increase for those with more equity.
Katie Brain, banking expert at financial information service Defaqto, has compiled this table which shows the best two-year fixed rates for first-time buyers.
It shows that they can now get mortgages on roughly the same terms as pre-pandemic.
First-time buyer mortgage rates today are on a par with those seen before the Covid pandemic
‘There are more high loan-to-value mortgages available to first-time buyers with many lenders returning to pre-pandemic terms and criteria,’ Harris says.
‘Rates are also more competitive than they have been and while you will pay more than borrowers with bigger deposits, the differential is narrowing.’
However, despite rates being lower, the higher cost of properties compared to a year ago will still mean buyers have to save bigger deposits than they did pre-pandemic.
‘The property market for first time buyers continues to be a difficult one’, says Brain.
‘The best thing first-time buyers can do is to save as much as they possibly can towards the house deposit as this will make the most difference in terms of mortgage deals available.’
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