London first time buyers will need an extra £34,500 of income on average due to rising interest rates

London first time buyers will need an extra £34,500 of income on average due to rising interest rates


London first time buyers will need an extra £34,500 of income on average due to rising interest rates?

Sterling crisis could drive up interest rates

First time buyers are the largest buyer group in the country but they’re about to be hit with higher interest rates. Here’s what’s happening and how you can offset the rising rates.

Key takeaways

  • First time buyers, the largest buyer group in the UK with nearly 177,000 transactions so far in 2022, will need an average of £12,250 more on their income to get a mortgage based on 4% interest rates
  • A whopping £34,500 extra is needed in the London market, but less than £5,000 in more affordable regions
  • Property interest among FTBs is up by 46% year on year as they drive the market from the bottom up.
  • More than half of their enquiries for three bedroom homes and an average price 10% higher than this time last year (£269,000).
  • FTBs are looking further afield in cheaper areas to buy a home, meaning less time spent saving up for a deposit.
  • Zoopla data shows that 25% of first time buyers outside of London are now searching 10km or more from their home address. That’s compared to just 20% in the summer of 2019.
  • This search radius has increased even more for first time buyers in London. 30% of first time buyers are enquiring for properties 20km away, up from 21% in summer 2019.

Source: Zoopla

It still a little cheaper to buy than rent.

Comparing the cost of renting and buying, Zoopla examined whether a renter can afford to buy the home they live in.

You would save an average of £200 by paying a mortgage (with a 2.5% rate) rather than renting.

On a 4% interest rate, it’ll still be slightly cheaper to pay a mortgage than to rent in most places.

But buying will edge into being more expensive than renting in the high value areas of London and the South of England.

5 Tips for First Time Buyers:

  1. Broaden your search area

Obvious, but makes sense if you rent in a city centre.

  1. Use a government buying scheme

The government has launched several first-time buyer schemes to help you get on the property ladder.

The Help to Buy: Equity Loan scheme is a popular choice. You need to put down a 5% deposit, which the government tops up with a 20% equity loan, rising to 40% in London.

However, this scheme is only open until October, and some banks are starting to wind down their Help to Buy mortgage offers.

Meanwhile, the First Homes scheme offers discounts of between 30% and 50% on new build properties to local first-time buyers and key workers.

There are several other schemes that can help you get on the ladder too.

  1. Team up with friends or family to get a bigger deposit

Offset rate rises by coming up with a bigger deposit.

Reduce the size of your mortgage and bring down the amount of interest you owe.

Many are turning to family members or pairing up with partners or friends to get a deposit together.

Use the available ISAs and tax free savings schemes to save for a deposit.

Many parents and grandparents use ‘equity release’ schemes to help fund a deposit.

  1. Do your homework on different types of mortgages

Learn how different types of mortgages are impacted by base rate changes.

There are still some cheaper deals out there, especially if you have a decent deposit and you can prove your strong financial position.

There are nine different types of mortgages. They all have their own pros and cons, as well as some restrictions that might mean you’re not eligible.

Speak to a mortgage advisor. Some specialise in first time buyer mortgages, so tap into their knowledge as well as doing your own research.

  1. Keep up with your local market

Local housing markets all different to the national picture and you’ll be in the best position to get on the market at a good price if you know what’s happening nearby.

You can uncover pockets of affordability and places where you can get on the market for less.

Speak to local estate agents and see what advice they have for first time buyers. They’ll have a full view of your market and could help you time your step onto the ladder.

Sterling crisis could drive up interest rates

Interest rates and inflation could soar if the Pound continues to fall against the Dollar.

Goldman Sachs predict that inflation could reach 20%!

Energy will rise again next month, food prices are rising at more than 10% and unions are striking for higher pay deals and some want to minimum wage to go up to £15 per hour.

Germany now has the highest inflation rate for 40 years.

To help you get through this and come out stronger at the other end I have prepared a brand-new training, which you can access right now from the comfort of your home.

Check out my new training to help you get control of your finances and learn how to become financially free in 28 days!

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