Mortgage rates have fallen by 1.2% since this time last year, saving the average first-time buyer £100-a-month in mortgage payments and £4,000 on a deposit.
A third of homes sold in the UK each year are bought by first-time buyers (FTBs).
But last year’s spike in mortgage rates meant buying a first-home became prohibitively expensive for many.
Highly motivated buyers either saved for bigger deposits or bought a smaller home than originally planned.
Others paused in their search, waiting for the cost of borrowing to fall.
Since the beginning of this year however, things have started to look up and our data shows demand for first homes has risen 20% year-on-year.
In fact, many first-time buyers are now looking at more expensive properties, averaging £249,100.
Mortgage repayments fall by £1,160 per year
According to Bank of England data, average mortgage rates have fallen from 5.7% last year to 4.5% today for those taking out a new 5-year, fixed-rate mortgage with a 25% deposit.
As a result, we estimate the average deposit is now £4,000 less than this time last year, despite many FTBs looking for larger homes and taking out larger mortgages.
Lower mortgage rates also mean lower monthly repayments, which have dropped from £1,076 to £979* for a typical first-time buyer home.
This translates to a monthly saving of £97 and an annual saving of £1,160.
However, as deposits fall and the prices of what FTBs are looking to buy increase, many are now borrowing more than they would have a year ago.
This, in turn, means that lenders will require a higher income to buy: £57,500 on average, up from £55,800 a year ago.
| Measure | July 24 | Jan 24 | July 23 |
|---|---|---|---|
| Most in-demand price point | £249,100 | £247,200 | £245,700 |
| Average deposit | £56,000 | £59,600 | £60,400 |
| Average mortgage size | £193,900 | £187,600 | £185,300 |
| Monthly repayment | £979 | £943 | £1,076 |
| Income to buy | £57,500 | £56,500 | £55,800 |
Zoopla research using UK Finance and Bank of England data
3-bed houses unquestionably the favourite choice
Half of first-time buyers outside of London are looking to buy a 3-bed house.
Despite mortgage rates rising in recent years, the more affordable end of the 3-bed market is still in reach for many households, especially for those looking to add value to their homes.
The exceptions are London and Scotland, where around a third of FTBs are looking to buy a 2-bed flat, making it the most popular choice in these regions.
This is largely down to the availability of stock in these areas, with flats being most commonly available, and the fact that affordability remains an important factor in the capital, given the high cost of buying a house there.
First-time buyers plan to spend £3,400 more on a home in 2024
Our data reveals FTBs are looking to buy homes costing £3,400 more than this time last year, an increase of 1.4%.
Yet mortgage rates have moderated over the same period, meaning monthy mortgage repayments have now dropped 9% for the average first-time buyer.
The prices of homes FTBs are looking to buy have risen the most in the North West (+4.4%) and East of England (+4.3%) since July 2023.
Prices for these homes were falling this time last year, but today’s reversal demonstrates that FTBs are now prepared to spend more on a home as the cost of borrowing comes down.
As well as being willing to pay higher prices, first-time buyers are also looking for larger homes in the North West and East of England, with three bedrooms or more.
However, in the North East and South of England, buyers are now looking for less expensive homes than in previous years.
This shows that mortgage rates haven’t fallen enough to ease affordability pressures in the South.
And while affordability looks stronger in the North East, first-time buyers are more sensitive to changes in the cost of living, which is why FTBs continue to look for lower-value homes here.
The prices of homes first-time buyers are looking to buy
| Location | July 24 | July 23 | Year-on-year change |
|---|---|---|---|
| South West | £244,400 | £250,900 | -2.6% |
| North East | £126,500 | £128,100 | -1.2% |
| South East | £327,700 | £331,400 | -1.1% |
| East Midlands | £213,800 | £213,700 | 0% |
| Scotland | £158,200 | £157,700 | +0.3% |
| Wales | £176,500 | £174,500 | +1.1% |
| Yorkshire & The Humber | £157,600 | £154,800 | +1.8% |
| London | £411,900 | £401,800 | +2.5% |
| West Midlands | £294,600 | £199,400 | +2.6% |
| East of England | £320,800 | £307,700 | +4.3% |
| North West | £171,500 | £164,200 | +4.4% |
| UK | £249,100 | £245,700 | +1.4% |
What’s the outlook for first-time buyer homes?
In 2024, the situation has improved for first-time buyers.
Growing earnings, modest house price growth and more attractive mortgage rates have boosted buying power for some, encouraging them to return to market.
However, affordability remains a key issue for many households interested in buying for the first time.
We expect mortgage rates to remain above 4% for the foreseeable future.
First-time buyers for whom this remains a barrier may choose to move further afield to access more affordable markets or consider purchasing a smaller property.
Looking to buy in 2024? Our Buying a Home guide has everything you need to know.
* Assumuming same mortgage term of 30 years; mortgage rates of 5.7% in 2023 and 4.5% in 2024; LTV of 75.4% in 2023 and 77.5% in 2024; and average price of £245,700 in 2023 and £249,100 in 2024.
Key takeaways
- Mortgage rates fall from 5.7% to 4.5% in a year, cutting £4,000 off the average deposit needed to buy a first home
- Monthly mortgage repayments are also less hefty, down £97-a-month compared to July 2023
- First-time buyers are now looking to spend £3,400 more on their first home as a result