This month marks one year since my wife and I bought our first property. We are thankful to have successfully navigated such a bizarre market when countless others are not as fortunate or, for various reasons, not inclined to do so.
UK homes are almost inconceivably expensive. We have said this many times, but it's worth repeating. Relative to annual earnings, the last time housing was this pricey was in the 19th century. Moreover, according to a report from thinktank the Resolution Foundation, Britons get less for their money than any other OECD country when adjusted for quality in terms of location, age and size.
Of course, one of the main arguments for first-time home ownership is that it is a better option than renting.
A big reason for this is the equity you receive. On top of this, first-time buyers begin saving almost immediately after they buy, because their mortgage payments will be less than the equivalent rental payments. But they don’t save much these days. Halifax calculated that the average UK first-time buyer saved £319 in 2023 by owning rather than renting, the lowest annual saving for the average UK first-time buyer since it started recording the data a decade earlier.
And that's the average. In most regions of the UK, average monthly mortgage payments were more than average rental payments in 2023. The south-west, London and Scotland were the only regions where owning a first home was cheaper than renting, and this is before maintenance costs are factored in.
The data is somewhat counter-intuitive. Higher wages, landlords passing on the costs of higher buy-to-let mortgage payments, a lack of stock available, and higher immigration mean record rental growth. However, despite this, home-owning costs more for first-time buyers in most regions because interest rates have hit levels not seen since 2009.
What is even stranger is that, despite first-time buyers getting a worse deal, they are relatively speaking more active. According to data from estate agency Hamptons, first-time buyers accounted for a third of all transactions in 2023, their highest share of market activity on record. That isn't a cyclical change but a structural one. In 2009, the last time the market slumped, they accounted for less than a fifth of all transactions.
What has changed between 2009 and now is the sheer number of buyer incentives out there. Help to Buy may have ended, but 1 per cent deposits are back and shared ownership offers a path. These three demand-side solutions present myriad problems but have stimulated the housing market.
There is a warning here for housebuilders. First-time buyers are increasingly the only people willing to submit themselves to the transaction process. Meanwhile, second-time and third-time buyers are sitting on their homes and are increasingly less willing (or less able) to trade up because of the many barriers the market presents.
Eventually, the market may reach a point where even first-time buyers give up. Economists do not expect interest rates to plummet any time soon, but estate agents are predicting that rental increases will normalise. Yes, buying comes with many other benefits. But if renting continues to offer higher monthly savings, another plank of housebuilder demand could start to creak. Meanwhile, the likes of residential landlord Grainger (GRI) will look pretty well-placed by comparison.
