Savills Portugal

In the last couple of years, those looking to buy and sell their home have had to adapt to falls in house prices and activity while contending with rising interest rates squeezing affordability.

First-time buyers (FTBs) have been significantly affected as they faced substantial hikes in mortgage rates. However, the number of FTB numbers have held steady in 2024, particularly in relation to other mortgage buyer types. What are the reasons behind this resilience?

In April 2023 FTB numbers were -30% below their 2017-19 average. Fast forward to April 2024 and they have recovered to just -11% below. This demonstrates a greater recovery compared to home mover and buy to let numbers, which were both -24% below their 2017-19 average levels in April this year.

What this shows is that FTB numbers have maintained their share of around 29% of the whole sales market, while home movers and buy to let purchases as a proportion of the market have decreased, and the proportion of cash buyers has risen.

Why have first time buyer numbers held up so well?

FTBs have adapted to challenging economic conditions by taking out longer mortgage terms to reduce monthly payments while interest rates have been high. The average term length in the first four months of 2024 was 31 years, according to our analysis of UK Finance data, up from the 2017-19 average when it was 29 years.

In the new homes market we have seen that FTBs are also willing to compromise on size or location to get on the housing ladder.

Another key factor has been high rental growth which has pushed potential FTBs to take the plunge as soon as possible, if they can afford to. Annual rental growth in April 2024 in the UK was 6.6%, according to Zoopla. This has ticked down in recent months from its peak of 12.2% in July 2022, but still remains high compared to historic levels.

Easing affordability to unlock pent-up demand

Greater stability in the mortgage markets at the start of 2024 has helped support FTB numbers. Lenders initially cut rates in January and February, which improved affordability for potential buyers and unlocked demand, leading to a boost in market activity. While rates ticked up slightly after this, they remain below their peak in 2023.

The boost to affordability meant that FTB numbers were just -6% below their 2017-19 average in February 2024, demonstrating the pent-up demand ready to be released when mortgage rates decrease.

The easing of affordability pressures also enabled FTB budgets to stretch further in 2024. In 2023 we saw FTBs adapt to the high cost of debt by purchasing slightly cheaper properties. According to our analysis of UK Finance data, the average FTB property purchase in 2023 was £264,500 compared to 2022 when it was £265,400. But in the first four months of 2024 (Jan-Apr) the average FTB property increased to £265,100.

Looking ahead, affordability pressures are likely to continue to ease. In May inflation dropped to the Bank of England target of 2% according to the ONS, which strengthens the prospect for the first base rate cut. Oxford Economics currently projects this will be in August, with a further cut later in the year. These cuts will enable lenders to reduce their mortgage rates, unlocking further demand.

For those mulling over the first step on the housing ladder, here is a selection of some of the best homes for first-time buyers currently on the market.