Two-thirds of people buying their first home head for a house despite the higher price tag.

First time buyers are leapfrogging one- and two-bedroom flats in favour of purchasing three-bedroom homes.

Two-thirds of people taking their first step on the property ladder are looking for a house, rising to 80% if London is stripped out, according to our latest research into the first time buyer market.

While the average first time buyer outside of the capital has set their sights on a three-bedroom home, a quarter of buyers in Northern Ireland and 17% in Wales are hoping to purchase a four-bedroom one.

Even in London, first timers are skipping one-bedroom starter homes and instead going straight to two-bedroom properties.

Richard Donnell, research and insight director at Zoopla, said: “First-time buyers are not compromising on the size and price of a home. “Our analysis suggests that they are taking the long-term view and buying a home with a longer time horizon than they may have done in the past.”

The research also found that first-time buyers are expected to remain the largest purchasing group in the property market in 2019, after accounting for 36% of all sales in 2018.

Why is this happening?

First time buyers appear to be purchasing larger homes with a view to growing into them.

This may be due in part to the older age at which people now purchase their first home, as well as the high costs involved in trading up the ladder, such as stamp duty and estate agents’ and solicitors’ fees.

Either way, today’s first time buyers are staying in their first home for longer than their parents did, and they do not appear to be rushing into purchasing smaller, lower value homes just to get onto the property ladder.

Who does it affect?

Our data showed that the gap between the average property price paid by first time buyers and all types of buyers has been narrowing for the past two decades.

In 2018, first time buyers purchashed homes that were just 8% to 15% cheaper than the average for their region, compared with properties that were 20% to 25% cheaper pre-2007.

They are able to afford these more expensive homes in part due to a growing number opting for longer mortgage terms, with the typical first-time buyer taking out a 29-year mortgage today, compared with a 25-year one a decade earlier.

 

 

What’s the background?

Despite their decision to buy larger homes, our report found that raising a deposit remained the biggest barrier to getting on to the housing ladder.

That said, first time buyers are still putting down an average of 23% of their home’s value, more than double the level of 9% seen before the global financial crisis.

Mortgage regulations were another hurdle, with potential buyers having to pass though affordability tests.

Although when buying a home, monthly mortgage repayments with a typical interest rate of around 2% were generally lower than the cost of renting the same property, buyers had to prove to lenders that they would still be able to afford the mortgage if interest rates were closer to 7%.

As a result, while buyers across Great Britain, excluding London, would need an annual income of just £20,000 to buy an average property at a mortgage rate of 2.2%, the figure rose to £36,000 in order to pass the stress test.

The situation was even more acute in London, where the income needed rose from £53,000 to £92,000 in order to pass lenders’ affordability requirements.

Top 3 takeaways

  • First time buyers are leapfrogging one and two-bedroom flats in favour of purchasing three-bedroom homes
  • Two-thirds of people taking their first step on the property ladder are looking for a house, rising to 80% if London is stripped out
  • While the average first-time buyer outside of the capital has set their sights on a three-bedroom home, a quarter of buyers in Northern Ireland are hoping to purchase a four-bedroom one

Find three-bedroom homes for sale on Zoopla

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