First time buyers are the largest buyer group in the country but they’re about to be hit with higher interest rates. Here’s what’s happening and how you can offset the rising rates.

Interest from first time buyers is up a huge 46% year on year as they drive the market from the bottom up.

They’ve now become the largest buyer group in the country with nearly 177,000 transactions so far this year. That’s one in three sales made to first time buyers.

And they’re going bigger and better, with more than half of their enquiries for three bedroom homes and an average price 10% higher than this time last year (£269,000).

Pandemic changes and new working from norms are continuing to power the first time buyer market.

They’re now able to look further afield in cheaper areas to buy a home, meaning less time spent saving up for a deposit.

Our data shows that 25% of first time buyers outside of London are now searching 10km or more from their home address. That’s compared to just 20% in the summer of 2019.

This search radius has increased even more for first time buyers in London. 30% of first time buyers are enquiring for properties 20km away, up from 21% in summer 2019.

First time buyers will soon need an extra £12,250 on their income to get a mortgage


Despite the current economic situation doing little to deter first time buyers, rising interest rates are likely to impact their levels of activity.

Moving from a 2% mortgage rate to 4% will see the average first time buyer require an extra £12,250 in income.

That means earning £48,000 compared to the previous £37,500.

In London, you’ll need an extra £34,500 on your income.

This impact won’t be felt as much in lower value markets, where first time buyers may only need a few thousand more on their income to secure a mortgage.

It’s still cheaper to buy than rent. Just.


One way to look at the impact of higher mortgage rates on first time buyers is to compare the cost of renting and buying.

We’ve looked at whether a renter can afford to buy the home they live in.

And at the moment, you’re saving an average of £200 by paying a mortgage (with a 2.5% rate) rather than renting.

With a 4% interest rate, it’ll still be slightly cheaper to pay a mortgage than to rent in most places.

But buying will edge into being more expensive than renting in the high value areas of London and the South of England.

What can first time buyers do about rising interest rates?


There’s no one-size-fits-all answer when it comes to how first time buyers can handle higher borrowing costs.

We know how hard it is to get a deposit together and step onto the ladder. And unfortunately, it’s not about to get any easier.

But there are a few things you can do to offset interest rate rises as a first time buyer.

1. Broaden your search area


If you can be flexible on location, look for homes in more regional or rural areas.

In areas outside of major cities, you can find cheaper homes or get more home for your money.

This means smaller monthly repayments, and the amount you pay in interest won’t seem quite as eye-wateringly high.

It’s a tactic that’s already being used by many first time buyers, as we’ve seen them stretch their search area further from their current location.

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2. Look into how you can boost your savings


It might seem like it’s all doom and gloom when interest rates go up.

But you could see an increase in the interest rates on your savings account or Cash ISA if you’re on a variable rate.

Shop around to see what interest rates banks and building societies are offering on their savings accounts. It could help you boost your savings and save for a deposit quicker.

3. Use a government buying scheme


The government has launched several first-time buyer schemes to help you get on the property ladder.

The Help to Buy: Equity Loan scheme is a popular choice. You need to put down a 5% deposit, which the government tops up with a 20% equity loan, rising to 40% in London.

However, this scheme is only open until October, and some banks are starting to wind down their Help to Buy mortgage offers.

Meanwhile, the First Homes scheme offers discounts of between 30% and 50% on new build properties to local first-time buyers and key workers.

There are several other schemes that can help you get on the ladder too.

4. Team up with friends or family to get a bigger deposit


Easier said than done, but you can offset rate rises by coming up with a bigger deposit.

This will reduce the size of your mortgage and bring down the amount of interest you owe.

It’s a trend we saw after the first lockdown, when first time buyers started turning up with bigger deposits.

Many are turning to family members or pairing up with partners or friends to get a deposit together.

5. Do your homework on different types of mortgages


It’s vital to understand how different types of mortgages are impacted by base rate changes.

There are still some cheaper deals out there, especially if you have a decent deposit and you can prove your strong financial position.

Keep in mind that there are nine different types of mortgages. They all have their own pros and cons, as well as some restrictions that might mean you’re not eligible.

Although the mortgage with the lowest interest rate might seem tempting, take a close look at what other restrictions will be in place.

This is where it can be worth speaking to a mortgage advisor. Some specialise in first time buyer mortgages, so tap into their knowledge as well as doing your own research.

6. Keep up with your local market


Local housing markets all have their own stories.

You’ll be in the best position to get on the market at a good price if you know what’s happening nearby.

You can uncover pockets of affordability and places where you can get on the market for less.

Speak to local estate agents and see what advice they have for first time buyers. They’ll have a full view of your market and could help you time your step onto the ladder.


Key takeaways

  • First time buyers have become the largest buyer group in the UK with nearly 177,000 transactions so far in 2022
  • But 4% interest rates mean they’ll need an average of £12,250 more on their income to get a mortgage
  • This reaches an additional £34,500 in the higher value London market, but is under £5,000 in more affordable regions
  • There’s no one-size-fits-all solution for first time buyers but consider more affordable markets, government schemes and different mortgage options