Buying a home in 2020: seven in 10 first-time buyers priced out of property market by coronavirus pandemic

It's thought that around £5 billion is being held up in the deposits of first-time buyers who have decided to delay until the pandemic is over. 
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Mortgage lenders have tightened their purse strings over the past few months, partly to cope with increased demand since the housing market opened up again, partly to guard against the ongoing economic uncertainty — but this is playing havoc with the plans of first-time buyers.

Before the coronavirus pandemic, first-time buyers were the most significant sector of the property market and accounted for more than half of homes purchased with a mortgage, with over 350,000 people in the UK buying their first home in 2019.

With the cost of buying a first home in the UK now £241,000, the national average deposit of £47,000 equates to around 20 per cent of the purchase price.

And in London, the average first-time buyer paid a staggering £109,000 deposit in the year to September which is around 23.5 per cent of the average £464,000 cost of a first home in the capital.

Table: average first-time buyer deposits when used alongside a mortgage

London area Average deposit
East London £97,000
East central London Not enough data
North London £170,000
North-west London £77,000
South-east London £79,000
South-west London £117,000
West London £189,000
West central London £240,000

Source: Trussle, November 2020

Until March this year, high loan-to-value mortgages were widely available but the first national lockdown led many banks to withdraw their high-risk loans.

Now, a new survey reveals that 62 per cent of buyers who had planned to buy their first home have decided to delay until next year at the earliest.

Despite saved deposits and having met pre-pandemic affordability criteria, seven in 10 UK first-time buyers now feel priced out of the market while 76 per cent feel angry, worried and confused by mortgage limitations.

Online mortgage broker Trussle, who conducted the survey, estimates that these purchases delayed by the pandemic total approximately £5 billion in held up first-time buyer deposits.

First-time buyer mortgages

Since March mortgage lenders have been steadily withdrawing high loan-to-value loans, in some cases toughening terms and increasing interest rates for those with a 10 to 15 per cent deposit.

“While it’s encouraging to see the property market remaining open for business with viewings and valuations remaining in place during the second lockdown, it’s disappointing that first-time buyers are struggling to navigate the market,” says Miles Robinson, head of mortgages at Trussle.

“The financial impact of the pandemic has meant that lenders are pulling a number of high loan-to-value mortgages.”

“As of this week, there are only 74 mortgage deals available for mortgage applicants with a loan-to-value over 90 per cent. By comparison, this time last year there were over 2,000."

Hina Bhudia of Knight Frank Finance says: “Ninety per cent loan-to-value mortgages are virtually non-existent. Buyers either can’t get one at all or if they do find a niche lender it’ll be at least 3.5 to 3.7 per cent.”

Most experts believe the hard line against young buyers will be reconsidered, with higher loan-to-value mortgages back on the table, as the world inches back towards normality and high street lenders begin competing for business once more.

Deadlines to consider

It’s important to remember that the stamp duty holiday – where there are tax savings of up to £15,000 on offer when buying a home in England and Wales – is due to end on March 31.

Agents have also reported buyers trying to get their purchases over the line finding themselves waiting weeks for basic steps like searches, mortgages surveys and conveyancing.

Typically, once you’ve found a home to buy, conveyancing alone can take a further 15 to 20 weeks.

As we’re now just over four months from the end of the tax holiday, buyers will need to submit mortgage applications this month to give themselves the best chance of completing before the deadline.

“In the current climate, a mortgage application can take anywhere up to 10 weeks to reach the mortgage offer stage; an unstable employment market, greater scrutiny over affordability checks, and disruptions to lenders’ ordinary operational capacities each contribute to slowing down the overall mortgage process,” says Brian Murphy of Mortgage Advice Bureau.

“The stamp duty holiday represents savings in the thousands of pounds for most buyers so if a transaction is suddenly delayed beyond the deadline, this could significantly impact cashflow if buyers have banked on not paying stamp duty.”

Adds up: Alex Greenwood hadn't been able to save much while renting in Stoke Newington but now hopes to buy a home next year

Moving home to save

Alex Greenwood, 27, a PR consultant, was paying £700 a month to live in a house share in Stoke Newington before the pandemic.

He decided to move back home to save and now hopes to be able to buy with a 10 per cent deposit if the mortgage market has loosened up again towards the end of next year.

He’s saving £1,500 a month and is aiming to have £30,000 to buy a property anywhere in London “except west” if and when high loan-to-value mortgages return.

"The savings plan I’d worked out for the next 12 months is based on needing a 10 per cent deposit, so I’m slightly worried about needing more but if I find myself short I don’t mind waiting a bit longer," says Alex.

"I’d ideally like to buy somewhere in east London but am open to south and north too."