First-Time Buyers Are Facing Converging Challenges - Could Later Life Lending Provide a Lifeline?

What does the landscape currently look like for first-time buyers?

The current average house price in the UK now sits at over £311,000, according to data from the Halifax, though this needs to be caveated with the fact that this will differ considerably depending on region - the same data set highlights that the average in the North East is £142,248 (3.6x the average local salary), compared to the £622,115 seen in Hammersmith and Fulham (10x that of the average local salary).

However, if we're to use the overall average as a foundation, and assume that buyers are putting down 20% of the house value, then a typical first-time buyer would need to put down a deposit of £61,090, up 14% from that seen in 2023. According to April Mortgages' research, that challenge is amplified in the capital where, based on a 4.5x income lending limit, a single mortgage applicant earning a median London salary of £47,086 would need a deposit of £369,423 to buy an average priced home in the capital (valued at £581,310).

Unsurprisingly, under this backdrop the average age of a first-time buyer is increasing, and the Halifax's data shows that in 2024 it rose to 33 years old - an increase of two years over the course of a decade. Additionally, over six in ten (62%) of new home buyers did so in two or more names, compared to 38% doing so in a single name.

What other challenges do new homebuyers face?

Research from Rightmove has highlighted that the average monthly mortgage payment for a first-time buyer has increased 59% in five years. Based on a two-bedroom property, with a 20% deposit and 30 year term, the research found that average mortgage repayments had increased from £590 in 2020 to £940 - though it ought to be noted that this is £155 lower than the peak seen in 2023, when average mortgage rates reached over 6%.

Moverly also recently highlighted the significant uptick in conveyancing costs, which rose by as much as 18% depending on region. Even on a national average basis, the findings showed that freehold property conveyancing costs increased 13%, to sit at £1,375.

Lastly, the changes to stamp duty which came into effect this month also have the potential to further increase costs for new homeowners. While the £311,000 average property price among new first-time buyers suggest that for many the effects will be marginal (if felt at all) when cross referenced with the new £300,000 threshold, there will be those who, through buying a higher-value property or who are buying in a more expensive area, will find this another consideration to have to factor into their planning.

Is later life lending a potential solution to ongoing challenges faced by prospective homeowners?

Despite all the challenges outlined above, Halifax's data points to a 19% annual increase in first time buyers. While it's difficult to pinpoint how many of those transactions were aided by family support and gifting, Savills estimated that 57% of first-time buyers in 2023 (equivalent to 164,000 people) benefitted from family support, which represented an increase from the 46% seen in 2022, and also estimated that financial gifts to aid house purchases would total £30bn in the three years up to 2026. This will doubtless have been influenced by rising rents, with the 9% annual increase seen last year, to sit at over £1,360 in England.

Looking at our own loan usage data, gifting has consistently been listed as the primary reason for borrowing among around 10-12% of new lifetime mortgage applicants, and the current breed of flexible products only serves to offer potential growth. The penalty-free optional repayments that were added as a Council product standard have offered people a way to manage the interest roll up on their lifetime mortgages, and the latest breed of interest servicing and mandatory payment term mortgages only serve to take this a step further, giving those wanting to explore gifting as a solution a way to do so while being able to manage the effect on the rest of their estate.

Looking at interest servicing lifetime mortgages in isolation, we've found that in the first six months since launching the option on our Heritage product people have made an average monthly payment of £402. Using these figures as an example. this means that a family could agree to take out an interest serviced lifetime mortgage, benefit from an interest rate discount that narrows the gap between residential and lifetime mortgage interest rates, and manage most, if not all, of the interest roll up - with an average monthly repayment that's around 43% of the current average monthly mortgage payment.

The flexible lifetime mortgage options have the potential to solve a variety/ of problems and continued innovation in, but it's up to us as a collective industry to ensure that later life borrowers understand the full options available to them in order to achieve their financial goals - including supporting their family.