Buying your first home isn’t easy. For years now, house price growth has exceeded wage inflation, putting the first step on the ladder further and further out of reach for many hopeful homeowners. At the same time, the cost of renting has also rocketed, making it harder for potential first-time buyers to save a deposit as more of their income is tied up in living costs.
Tenant referencing company Homelet says that rents continued to set new records, with the average UK rental price rising to another all-time high of £1,261 per month in August, up by 1.4% on July. Average rental prices in London rose by even more, up by 1.7% to £2,145. Homelet says even the cheapest rental area, the North East, increased by 3.0% to an average monthly rental cost of £655.
The fear of uncapped rent hikes could be a reason why more hopeful homeowners are more motivated to take the step on the homeownership ladder. Broker research platform, Mortgage Broker Tools (MBT) has said that case enquiries were up by 2.3% in August compared to the same period last year, with purchase activity accounting for its highest level this year and the vast majority of those being from first-time buyers.
None of us want a turbulent property market, but we all know that the market works in cycles and, when prices are falling, this can open up opportunity for those looking to buy their first home.
According to Halifax, the average UK property price has fallen by £14,000 over the course of the last year, driving down house prices to their most affordable level since 2020.
Estate agent, Hamptons says that in 2026, the average first-time buyer will be paying £313 less per month on their mortgage than they would be paying in rent.
Forecasts by Hamptons found that, on current trajectories, average rents are likely to outstrip wage inflation, reaching £1,550 a month by the end of 2026. Over the same period, it says mortgage costs are likely to drop slightly because of a reduction in rates.
It also looks like wage inflation is starting to catch up with the cost-of-living crisis. In May to July 2023, the annual growth for regular pay (excluding bonuses) was 7.8%, according to the Office for National Statistics (ONS). This is the same as the previous three-month period and the highest annual growth rate since comparable records began in 2001.
ONS says annual growth in employees’ average total pay (including bonuses) was 8.5% in May to July 2023, which is the largest annual growth rate seen outside the coronavirus pandemic period.
In real terms (adjusted for inflation using Consumer Prices Index including owner occupiers’ housing costs (CPIH)), in May to July 2023, total real pay rose by 1.2% on the year, meaning that wage increases have finally caught up with inflation.
So, now that Help to Buy is no longer available, what options are there to support hopeful homeowners to make the most of the opportunity to get on the ladder now and potentially put themselves in a stronger position for the future? And how could a specialist lender help those customers?
At Pepper Money, we have a clear purpose, to deliver positive societal outcomes and promote greater financial inclusion to a more diverse range of customers. As part of this, we have launched an Affordable Home Ownership proposition, which offers a suite of products that support a number of first-time buyer schemes, including Shared Ownership, Right to Buy, and now, we have become the first specialist lender to support the First Homes scheme.
Shared Ownership
Shared Ownership allows a first-time buyer to purchase between 25% and 75% of a home, with the rest being owned by a housing association. The buyer pays rent on the proportion of the house they don’t own, but a greater share of the house can be bought over time in a process known as staircasing. Assessing if somebody is suitable for this scheme revolves around the affordability calculation, which is where a specialist lender that can consider different sources of income comes into its own.
Right to Buy
Right to Buy allows a council home tenant to buy the property they live in at a significant discount. Research we conducted alongside YouGov found that over half of people who rent their home from a local authority or housing association would consider using Right to Buy.
First Homes
Lastly, the First Homes scheme provides discounts of at least 30% on new build properties, with this increasing to 50% under some local authorities. Potential buyers must be able to raise at least half the price of the home through a mortgage.
The role for specialist lenders
Many lenders are tightening their credit scoring in the current environment and squeezing debt to income ratios, which is where a specialist lender can help.
At Pepper Money, for example, we do not credit score, so we can consider poor scores and thin credit files. We also look at each case individually, allowing us to be more flexible on those with debts in the background and we don’t have a debt-to-income ratio. We consider many income types, including contractual work, bonuses, overtime and self-employment, broadening our offering to even more hopeful homeowners.
Buying your first home is never easy, but it is possible and there’s currently an increase in first-time buyer activity. At Pepper Money, we work hard to turn that activity into homes, with our individual approach to helping customers combined with our Affordable Home Ownership Proposition. It’s a specialist approach to helping FTBs.
Ryan Brailsford is business development director at Pepper Money
