Barriers to becoming a homeowner are already high, with first-time buyer mortgage lending down by almost a quarter in the last year, but updated forecasts from the Office of Budget Responsibility (OBR) released alongside the Autumn Statement revealed they will likely get worse.
Earlier this year, Leeds Building Society revealed that 426,000 fewer first-time buyers would be able to buy their first home over the next five years, compared with the past 40-year average, if current economic projections play out.
Comparing the OBR data with its forecasts from March 2023, Leeds suggested that conditions are becoming tougher, with more potential homeowners set to join this group of ‘lost’ first-time buyers.
Real earnings growth is set to remain negative in 2023 (-0.3%), turning only marginally positive over the next few years (less than 0.5%) between 2024 and 2027.
The Bank of England base rate is also set to stay higher for longer, with average mortgage rates continuing to rise over the next few years, peaking at 5.0% in 2027 (0.8% higher than the previous OBR forecast in March 2023).
In addition, house prices were projected to fall modestly by 4.7% in 2024.
However, this trend is expected to be only temporary, with house prices returning to growth from 2025, with the average house price passing £300,000 by the end of 2028.
As a result, the OBR forecast housing transactions to fall by 6.9% in 2024, a decline of 1.9% against their previous forecast in March 2023 (5.0%), before steadily returning to growth at the end of 2024.
In light of this, Leeds Building Society said action was required in three key areas to build a market which better supports and empowers first-time buyers.
First, the called for the building of more homes of all types, with a major acceleration of current efforts.
It also suggested policy changes, including the restoration of mandatory housing targets and the introduction of targets for affordable housing in local authorities, and reform of the planning system.
The society also said there should be an increase in affordable routes to homeownership, with renters’ reform to provide greater protection for those saving for a deposit, support for a well-managed and regulated Build to Rent sector, and increased schemes such as Shared Ownership.
Lastly, Leeds called for further support for people saving for their deposit, with reform to the Lifetime ISA scheme to reflect house price increases and new measures to allow people to build and improve credit scores by including rent payments.
Richard Fearon (pictured), chief executive officer of Leeds Building Society, said: “The greatest influence on affordability for first-time buyers is the toxic combination of rising deposit requirements and mortgage interest rate increases over the last 18 months.
“We recently highlighted that 426,000 people – or 233 per day – will be unable to buy their first home over the next five years if the economic projections became reality.
“Sadly, the new OBR forecasts reveal homeownership will remain a dream for an even higher number of people.
“It’s no surprise that home ownership has fallen by a third among young people, and that housing transactions are set to fall by 6.9% over the next year, when the hurdles to achieve homeownership are so high.”
He added: “We’re taking steps ourselves to support aspiring homeowners, and we welcome the support brought forward to help the housing sector plus the extension of the mortgage guarantee scheme.
“However, every generation deserves a place to call home, and with first-time buyer affordability at its worst point for many decades, the Chancellor needed to go further.
“Without action we risk creating a lost generation of first-time buyers. We believe the government can, and must, do more to support first-time buyers by building more homes of all types, by increasing affordable routes to home ownership, and by helping potential homeowners save for their deposit.”
