This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
Good afternoon, Happy New Year and welcome to the first Home Front of 2025.
Pity the first-time buyer. Even if mortgage rates fall slightly this year (more on that in a moment) it won’t do much for aspiring homeowners.
Here’s why. If you’re looking to buy a home for the first time this year, it won’t be easy unless you have incredibly cash-rich parents (or grandparents) who can help you with a deposit.
If you’re not lucky enough to have been born into money, you’ll need several things to become a homeowner.
First up, a huge income means you have a) been able to save a sizeable deposit without help and b) can borrow enough to afford the expensive housing that has become the norm across Britain.
In the 2022/23 financial year, 58 per cent of all first-time buyers were in the top two income quintiles. Income quintiles are five statistical groups which rank Britain’s workers based on how much they earn.
Secondly, you’ll probably need to be over 34 years old. According to the Government’s own data, the average age of first-time buyers across England in 2022-23 was 34. In London it was 35. In that time period, the number of first-time buyers over the age of 45 jumped up too. People aged 45 or older made up 13 per cent of the first-time buyers in 2022-23 – it was just 5 per cent in 2019-2020, before a price surge during the pandemic.
And, finally, you’ll need to be prepared to borrow more for longer. Average mortgage loan lengths are rising. But the will to do this won’t be enough on its own. You’ll need approval from a building society or bank to take out a mortgage which, in all likelihood, will run into hundreds of thousands of pounds for 35 years or more. If you’re 34 when you buy your home, that means you could be repaying it in your seventies.
According to Uswitch analysis of government data, in 2022-23 the average mortgage loan for first-time buyers in the UK was £201, 525. This has increased by £10,000 (or 5 per cent) from the previous year.
Lower house prices in some parts of the country will skew this figure. In London, it was £383,386.
In 2023, the average deposit paid by first-time buyers across the country was £53,414. Again, this will be lower in some places.
House prices across the country are forecast to rise this year. That’s no sure thing but, if these forecasts are correct, the above statistics – the size of mortgage loans, deposits and the age of first-time buyers – are likely to rise too.
In recent weeks a flurry of headlines have suggested that mortgage lenders may be able to save the day, as they’ve lowered their rates since the Bank of England decided to hold interest rates at 4.75 per cent in December and signalled several cuts could be expected this year.
But, they have not and, honestly, cannot bring rates down enough to make buying a home affordable for most would-be first-time buyers.
At the time of writing, the average mortgage rates available for first-time buyers in Britain were as follows:
Between 4.59 and 5.19 per cent for a two-year fix. Between 4.21 and 4.98 per cent for a five-year fix.This is still very expensive in relation to house prices and means that you’ll probably have to be a high earner with a sizeable deposit to be approved for a loan.
Generally speaking, lenders limit what a homeowner can borrow to 4.5 times their income (this is also known as a loan-to-income ratio). This also restricts what will be approved as “affordable” for first-time buyers with average mortgage rates still above 4 per cent.
That’s an issue that will hurt would-be upsizers, too. That’s people who are moving out of starter flats and looking for larger, more expensive homes without much equity to accommodate growing families.
At the end of 2024, some lenders proposed another solution to first-time buyers’ problems.
Barclays, Santander and Halifax all announced that they would lend five-and-a -half times people’s salaries in certain cases.
Nationwide went even further, saying it would lend six times a buyer’s income even if they only had a 5 per cent deposit.
In theory, this could solve the problem of high house prices and high mortgage rates.
In practice, it’s unlikely to do so.
Why? Because there are restrictions put in place by the Bank of England which state that no more than 15 per cent of new mortgage lending should have a loan-to-income ratio of more than 4.5 times a borrower’s salary.
Long story short? Even if they wanted to, lenders can’t offer that many first-time buyers the big mortgage they will need to make high house prices affordable in line with these guidelines.
All of this presents a problem for the new Labour government who find themselves in a bit of a bind.
Labour has pledged to build 1.5 million homes by the end of this Parliament. They need to do this to boost the economy. They also need to do it to create a new supply of housing for would-be first time buyers.
However, unless mortgage rates fall dramatically (unlikely), house prices crash (also unlikely) or the Bank of England eases their guidance for lenders (possible but arguably not smart given what happened in the run up to 2008), it’s going to be very, very difficult for the young adults who want to buy them to get the mortgages they need.
There is also an economic argument to be made against encouraging people to take out enormous mortgages for huge chunks of their lives. It will mean their take-home pay is tied up in housing when it could be spent elsewhere in the economy, reinforcing the vicious feedback loop of high house prices.
Whether it’s a good idea or not, though, it’s the main question that the Treasury and the Bank of England will be asking themselves this year. Labour wants to help first-time buyers, how reckless they are prepared to be in order to do so will become clear.
Donald Trump’s policies appear to be spelling bad news for America’s housebuilders, with their share prices falling since the election. (Photo: Rebecca Noble/Getty Images)
Britain is not the only country with a housing crisis. Since Donald Trump won the US election, much has been made of the economic boon his victory delivered to some. Shares in Elon Musk’s Tesla surged, as did the price of Bitcoin and, more broadly, US stock markets (the Dow, S&P 500 and Nasdaq) also hit record levels.
This was largely because investors priced in Trump’s promises of tax cuts and trade tariffs.
However, these very policies appear to be spelling bad news for America’s housebuilders, with their share prices falling since Trump’s election.
This is because Donald Trump’s inflationary policies have decreased the likelihood of America’s central bank – the Federal Reserve dramatically cutting interest rates quickly and easing the pressure on first-time buyers in the US.
Added to that, Trump has pledged mass deportations which could impact the migrant workforce that America’s construction industry relies on.
According to the Migration Policy Institute (MPI), 6,829,000 unauthorised immigrants in the United States in 2019 were employed in construction, which was the top industry of employment for this group.
As Britain learned after Brexit, the immigration ‘crackdowns’ promised by politicians can have unintended consequences for housebuilding statistics.
Ask me anything
Perhaps less a question this week and more of an observation.
A reader has written to me over on Instagram to express her concern about her Help to Buy loan.
“I’m stuck,” she writes. “The more house prices rise, the more money we owe on our loan.”
The Help to Buy loan is designed to work like this. When it was available, borrowers were able to take out a government equity loan to the tune of 20 per cent outside of London or 40 per cent of the value of their home in the Capital as well as a mortgage.
However, unlike a repayment mortgage which goes down as you pay it off, the Help to Buy loan is interest only (unless you make capital repayments) and, if the value of your home rises, the loan goes up with it as a percentage of that value.
In years to come, this could create problems for the first-time buyers who used the scheme but have not been able to repay their government equity loans.
Are you in the same situation as this reader? Have you had any problems with Help to Buy? I’d love to hear from you.
Send in your questions to: @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email [email protected].
Vicky’s pick
Cynthia Erivo as Elphaba and Ariana Grande as Galinda in Wicked. (Photo: Universal Pictures/AP)Since I last wrote to you, I have been to see Wicked at the cinema. As someone who is not usually a fan of musicals, I was apprehensive. But, John M. Chu’s adaptation of the stage production was more than enchanting.
No spoilers so, all I will say is that I particularly enjoyed the accessible sub-plot about free speech which will be understood by viewers of all ages. Indeed, in the context of the drama that has unfolded over on X in recent days with Elon Musk taking aim at British politicians, it feels particularly timely.
This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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