The housing market has remained buoyant amid a cost of living crisis currently engulfing the UK. More than three-quarters of estate agents say that sales agreed have been at or above the asking price, according to Propertymark. Indeed, house prices increased by 7.8% in the 12 months to June 2022. It’s promising news for homeowners, but what about first-time buyers? What does the average price look like for anyone hoping to get on the property ladder? With that in mind, this guide looks at the average first time buyer house price and the impact of potential interest rate rises on the property market.
What is the average first-time buyer house price?
According to Rightmove, the average sold price of homes over the last 12 months is more than £350,000. The figure for first-time buyers isn’t as high due to buying lower-priced properties, such as apartments and one- and two-bedroom homes. It’s estimated that first-time buyers outside of London spend slightly over £225,000 on their first home. In the capital, that figure jumps considerably to more than £400,000 (£727,743 on average).
The cost of living crisis has done little to temper house prices in the UK, with average house values surpassing £350k for the first time. Between 2021 and 2022, house prices in all regions and counties except London and Scotland increased by 10%. They are now approaching a level (house price to income ratio) not seen since the height of the economic and housing boom of the 2000s.
What’s happening with interest rates?
As house prices rise, so do interest rates. The Bank of England (BoE) sets the base rate, which is currently 2.25%. After years of historically low-interest rates, the BoE has increased the rate several times and is expected to raise it further over the next 12 months. Some analysts believe rates could reach 6% before the end of 2023.
As a result, property buyers – whether first-time or otherwise – can expect higher monthly mortgage payments. For first-time buyers, this makes buying a home even more expensive. UK government statistics already show that people who owned and lived in their own homes peaked at just under 71% in 2003 in England. By 2020, it had fallen to 64%.
Why is there a cost of living crisis?
The cost of living crisis has been brought on by several factors creating the perfect storm. The fallout from Brexit, coupled with Covid and the war in Ukraine, has seen food and energy prices soar in the UK, with inflation reaching a 40-year high of 9%.
Ideally, inflation should be around 2%. To try and bring it down, the BoE raises interest rates, so borrowing money is more expensive. Consequently, people save more and spend less. The less spent on goods and services, the higher the chance of prices of things rising more slowly. Slower price rises equate to a lower rate of inflation.
New stamp duty measures offer good news
First-time buyers feeling the pinch of rising house prices and higher interest rates can take some solace in recent stamp duty changes. In late September, Chancellor of the Exchequer Kwasi Kwarteng announced new stamp duty measures primarily aimed at first-time buyers.
Under the announcement, first-time buyers won’t pay any stamp duty on homes valued up to £425,000 and 5% on properties valued between £425,001 and £625,000. Previously, stamp duty relief was available on homes up to £300,000 but has now been increased by £125,000.
Will there be a housing market crash?
Ultimately, the housing market favours sellers, although this could change as interest rates rise. There have been some fears that higher interest rates could lead to a housing market crash of the type not seen since 2008. But with the market remaining in rude health throughout Covid and so far in the cost of living crisis, it seems to defy expectations.
Indeed, some homeowners are putting up prices despite interest rate rises. Currently, demand is outstripping supply. While it’s hard to predict if the current landscape will remain, there’s a strong argument for the housing market staying resilient during testing times.
What does it all mean for first-time buyers?
Higher interest rates and increasing house prices aren’t good news for first-time buyers. Surging borrowing costs will make the monthly cost of owning a home more expensive for buyers with a mortgage while rising house prices move the goalposts further.
However, the introduction of higher stamp duty relief offers some respite from increasing prices. It gives first-time buyers the chance to save thousands on homes up to £425,000, which is well above the average first-time buyer house price.
Buying for the first time
First-time buyers are finding themselves paying more to purchase their homes in the current climate. But there’s still an appetite for property, as well as government initiatives in the form of Help to Buy schemes designed to make it easier to get the keys to your home. With further ridges in interest rates, it’s also possible that house prices will slow rather than crash. That could mean slightly more affordable expenditures for first-time buyers in the next 12 to 18 months.
Last Updated: October 7th, 2022
