Mortgages: I’m a first-time buyer – is now the right time to buy?

As experts warn of “extreme volatility” in the mortgages market, the current uncertainty around property payments is causing concern for many homeowners and renters.

With the Bank of England repeatedly raising interest rates in response to stubborn inflation, the average rate of a two-year mortgage topped 6 per cent this week – as analysis suggests that someone seeking a £200,000 mortgage could now be asked to pay over £300 more per month than a year ago.

Meanwhile, as many landlords pass on their costs to tenants, data from Zoopla suggested that rental costs now account for an average of 28.3 per cent of people’s pre-tax earnings, the highest level in a decade.

While the impact on sky-high house prices has so far been relatively unclear, with Land Registry data showing a 4.1 per cent year-on-year increase in the 12 months to March, some lenders have predicted that prices could fall significantly in the year ahead.

Against this backdrop, The Independent has spoken to mortgage experts about their advice for first-time buyers looking to enter the property market.

While today’s is “not the easiest” market for first-time buyers, “nor is it the worst market we’ve seen”, according to Thomas Jackson, managing director for Cooper Associates Mortgages.

“It’s certainly harder to borrow money today. Affordability calculations are tighter. Compared to only a few months ago, first-time buyers with the same salaries and expenditure can’t borrow as much,” said Mr Jackson.

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“While it may feel very unfair, this move is in the best interests of the consumer”, he added, given that some may see their expenditure continue to rise with increased interest rates and the cost of living crisis. “Lenders don’t want to see borrowers unable to repay mortgages or need to make difficult financial decisions.”

However, on the other side of the coin, first-time buyers need less deposit than during the pandemic, Mr Jackson said, with 100 per cent products having previously been non-existent and 95 per cent products now widely available having been taken off the market.

There is also “a lot more choice of housing”, according to Mr Jackson, who said: “We’re no longer in the world of huge over-offers which we saw when the Stamp Duty holiday came into effect. There’s good housing stock and there’s more time to make a choice.”

The “volatility of the last six months to a year has been unsettling for many”, said Felicity Holloway, head of mortgages at Moneybox, pointing a nearly 50 per cent rise in first-time buyers seeking their advice services over the past year.

That was despite research the firm published this week by OnePoll finding that nearly six in 10 aspiring homeowners saying the inflationary crisis was making it harder to save for a deposit, with around a third of respondents now planning to buy later than originally hoped.

Roughly the same proportion are now seeking to build a larger deposit, or were making compromises on the location and features of their sought property.

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While four in 10 of the 1,000 respondents felt their homebuying plans had gone backwards in the last six months, this was down from 68 per cent six months ago. Conversely, nearly a quarter managed to save more towards their deposit than anticipated, while one in five felt buoyed by predictions of falling house prices.

“It is great to see how pragmatic first-time buyers have remained remarkably resilient, adapting to the changing market conditions and remaining optimistic as they do all they can to consistently save towards their goal,” said Ms Holloway.

“Being able to perfectly time buying a house is impossible. Even in the best market conditions, there are still risks. If you can, take the plunge and buy,” said Mr Jackson, pointing to the fact that rents are also rising and can be more expensive than having a mortgage.

“Don’t forget that there’s time to renegotiate. The homebuying process takes around 12 weeks at the absolute minimum, and we know how much can change in just three short months.

“Until you add legal fees to the mix, the process is relatively inexpensive. If the market begins to change before you’ve exchanged, there’s space for renegotiation with your vendor to ensure you are paying a fair value for your property.”

Ms Holloway, meanwhile, urged people to seek independent expert advice, saying: “When it comes to buying your first home, more often than not, the right time to buy is when you are ready. But it can be overwhelming trying to figure out the best options for your needs and the implications of changing market conditions.”

While house prices have dropped in recent months, according to the lenders such as Nationwide and Halifax, Mr Jackson warned that rapidly rising mortgage interest rates could see first-time buyers “paying more per month for a house that is reducing in price”.

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“By waiting, you risk needing to take out a mortgage over a longer-term to make payments affordable and increasing how much interest you pay. In the worst-case scenario, you’re no longer able to afford to buy,” he said.

Ms Holloway added: “If the last year has taught us anything is that it is impossible to predict the future. However, is fair to say that historically property has always proven to be a sound investment in the long term.”

While a boost to potential first-time buyers, falling house prices can bring a risk of negative equity, when the value of the property falls below the cost of the mortgage, a situation which can result in banks demanding payment to make up the difference if the property is eventually sold at a loss.

Falling house prices could also pose an issue for some if they eventually come to remortgage.

A signficant decrease in the value of a property could push some owners – who are left borrowing more in relation to the value of their property – into a higher loan-to-value bracket, meaning they could face paying a higher premium, according to Riz Malik at R3 Mortgages.

According to Mr Jackson, there is “a lot of reassurance in the market that the negative equity risk is negligible”, pointing to the return of 95 per cent mortgages as “highlighting lender confidence”.

“Lenders are also protecting borrowers from negative equity. Some borrowers on 100 per cent and 95 per cent mortgages are required to tie into five-year fixed terms. A part of this is if they do enter negative equity, there’s time to weather the storm as the market stabilises,” he said.

But Ms Holloway warned that, if property prices were to fall by around 10 per cent in the coming years, “those on high loan-to-value mortgages are at risk of falling into negative equity in the short to mid-term”.

“However, it’s important to keep short-term market fluctuations in perspective,” she added. Buying a home is a long-term investment and so if you don’t intend to or need to sell in the coming years the impact will be minimal.”