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The worst housing market downturn since the global financial crisis hasn’t deterred Graziana D’Emilio, who has just taken the plunge and bought her first home.
The 35-year-old project manager will move into her one-bedroom flat in the new London Square development in Croydon, in the south of the city, this month – and she can’t wait to unpack and relax in her new pad.
“I plan to put my Peloton in... [and create] a corner for sitting and chatting with friends and enjoying an aperitivo once the working day is over,” says Ms D’Emilio, who paid £340,000 for her flat (remaining one-beds in the development now cost from £399,950).
Indeed, while expensive mortgage rates and unaffordable house prices mean property sales are on track to slump by almost a quarter this year, mortgaged first-time buyers look set to be 2023’s largest buyer group, accounting for a third of all home purchases, according to the property portal Zoopla.
This means they are slightly ahead of cash buyers, who have bought 32pc of homes sold so far in 2023.
Richard Donnell, executive director of research at Zoopla, says that even though the share of homes bought by first-time buyers is down compared to recent years, rapidly rising rents and a lack of rental homes continues to support their desire to own their own bricks and mortar.
“In areas with cheaper house prices, first-time buyers’ mortgage repayments are lower than rental costs – even at 5.5pc mortgage rates,” he explains.
This was the case for Ms D’Emilio, who has spent four years as a tenant in northwest London. “Renting does give you flexibility, but in my case the mortgage will be lower than my current rent and makes more sense financially, despite the higher interest rates.”
Croydon – where flats sell for an average of £289,422, according to Rightmove, far less than other more central parts of London – is one of 22 local authorities that are attracting so many first-time buyers that they now outnumber movers, according to exclusive new research from Hamptons estate agency.
Back in 2019, before the Covid pandemic, first-time buyers outnumbered movers in only four local authorities, all of which were in London.
As well as its lower comparative house prices, one of the reasons Ms D’Emilio chose Croydon was for the suburb’s convenient transport links – she can get the train into central London or Gatwick airport in less than 15 minutes.
“Being well-connected is a must for me as I travel a lot,” she says. Croydon is also known for its shops, as a growing financial centre and is this year’s London borough of culture.
Today, the capital is still the first-time buyer hotspot, with eight areas in which the number of first-time buyer applicants are outnumbering movers. Like Croydon, most are in cheaper parts of the city and include Barking and Dagenham, Tower Hamlets and Waltham Forest.
Leafy Greenwich, in the southeast, tops the table – for every mover searching for a home here, there are almost four first-timers also looking to buy.
Other English cities are also drawing in more would-be homeowners. In Leeds, 1.73 first-time buyers are looking to purchase for every mover, while first-time would-be homeowners also dominate in Coventry and Birmingham.
Aneisha Beveridge, head of research at Hamptons, says: “This analysis partly cements the idea that first-time buyers are keen to remain in cities to be close to their jobs. However, it probably also reflects the fact that movers – particularly those needing to trade up – are having to move further out of city centres to more affordable areas to get the home they want.”
Most first-time buyers opt to buy flats, says Matt Thompson, head of sales at Chestertons estate agency. “These are cheaper, with one- and two-bedroom apartments in close proximity to transport links and shops particularly sought-after.”
Mr Thompson adds that the majority of new homeowners are opting for properties costing less than £425,000, which means they currently pay no stamp duty on the purchase – the nil-rate threshold at which first-time buyers pay the tax will revert to £300,000 on March 31 2025.
Despite their resilience in tough market conditions, Savills expects the number of first-time buyers getting the keys to their own place this year to hit 280,000, far below the pre-pandemic annual average of 350,000.
Those that do get a toehold on the ladder are also increasingly reliant on help from their parents to raise a deposit – Savills forecasts 63pc of buyers to get money from the so-called “bank of Mum and Dad” in 2023, up from 46pc last year.
Frances McDonald, director of research at the estate agency, says: “With no obvious scheme expected to replace the support from Help to Buy, a far greater proportion of buyers will be relying on family members to help them take their first step onto the property ladder.”
Indeed, after years of renting in London, Karen was only able to buy her first home thanks to the bank of Mum and Dad.
The 27-year-old environmental advisor recently purchased a two-bedroom flat in the Horlicks Quarter in Slough, the redevelopment of the Berkshire town’s old Horlicks factory, where prices start at £279,950.
“It was always my goal to be able to buy my own home and, with the support of my parents, I was able to,” says Karen, who did not want to reveal her surname.
It is little wonder that people are desperate to escape the overheated rental market, which has seen market rents rise by a third since the summer of 2019, according to Zoopla.
Imogen Pattison, assistant economist at the consultancy Capital Economics, says: “Based on market rents, the cost of a new rental as a share of income has reached almost 40pc of income in England, and over 50pc in London.”
Adrian Anderson, director of the mortgage broker Anderson Harris, says first-time buyers are so used to paying a high amount of rent and are not used to cheap mortgage rates – hence they are not as put off as “next time buyers” by the current high interest rates.
“Many are taking the opportunity to get onto the ladder at a cheaper purchase price compared to two years ago,” Mr Harris adds. “First-time buyers are also predicting that more landlords will be selling up after their cheap mortgage rates have ended.”
This is certainly the case in Wandsworth, southwest London – another first-time buyer hotspot.
Simon Evans, head of sales at Hamptons in Balham, says: “Rents are upwards of £2,000 a month and you’re not getting a lot for that – probably a one-bedroom flat. There are a lot of landlords disposing of properties, and people in their twenties and thirties are looking at buying these homes rather than renting them.”
Another factor helping first-timers on to the ladder is the ability to take out longer mortgage terms in order to reduce payments. Capital Economics says the share of new first-time buyer mortgages with a term of over 30 years has jumped from a quarter a decade ago to over half now.
The consultancy adds that taking out a mortgage with a term length of 35 years rather than 25 reduces payments by 13pc, which offsets some of the increase in mortgage rates.
The market looks set to continue appealing to first-time buyers for the foreseeable future. Although property prices rose unexpectedly in October, according to the closely-watched indices from both Halifax and Nationwide, most forecasters expect further dips, which should help first-time buyers – Savills, for instance, expects prices to fall by 3pc in 2024.
The inflation rate fell sharply in October and mortgage rates are also bottoming out.
Danny Belton, head of lending at Mortgage Advice Bureau, says: “The drop in inflation is good news for prospective buyers and will reinforce the view that the worst of the interest rate hikes is behind us.”