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    End of Year Market Forecast for First-Time Buyers & 2022 Outlook

    1. 21 October 2021
    2. By Jeremy Greer

    An exploration of the outlook for First Time Buyers for the rest of the year and into 2022.



    First Time Buyers are always one of the most active and important parts of the property market. But their importance may be increased now that the stamp duty holiday is over, removing the incentive of a tax saving for second steppers, downsizers, and buy-to-let investors.

    Most First Time Buyers are exempt from paying any stamp duty on their first purchase, due to the permanent stamp duty holiday that’s been in place since November 2017. This means that First Time Buyers can purchase property of up to £300,000 without paying any stamp duty.

    Meanwhile, First Time Buyers remain a popular target for political parties given their increasing importance in the market, with all parties aiming policies in their direction. The Government has also sought to help First Time Buyers in recent years with various schemes, most recently with 95% mortgages and the First Homes initiative.

    Here, we set out what First Time Buyers can expect for the rest of the year and what 2022 might bring.

    Better mortgage rates for low deposit mortgages

    During the height of the pandemic, lenders opted for a safety-first approach. Low deposit mortgages become more difficult to come by as lenders prioritised the security of a large deposit.

    However, the easing of lockdown restrictions has seen low deposit mortgages return with a bang. Mortgage rates for First Time Buyers are tumbling, with lenders battling for business from borrowers with small deposits.

    Rates that would have seemed laughable just months ago are now available. According to Which?, it’s possible to secure a 90% mortgage with a rate of less than 2%, or a 95% mortgage at below 3%.

    The consumer body found that nine in ten 90% and 95% mortgages were withdrawn from the market following the start of the Covid-19 outbreak in March last year.

    However, the landscape is looking much rosier 18-months on for First Time Buyers who can only afford small deposits.

    Most lenders have brought back their low-deposit deals, with the launch of the 95% mortgage guarantee scheme in April – which includes a government guarantee to offset the risk of lending – leading to a flurry of mortgages coming on to the market. Rates have been dropping steadily since then.

    What schemes are on offer to First Time Buyers?

    When lenders stopped offering low deposit mortgages during the pandemic, many First Time Buyers found themselves side-lined in favour of those who could stump up more initial cash. For most First Time Buyers, who tend to be younger and lower paid, a deposit of at least 10% was too much.

    To change this, the Government launched its new mortgage guarantee scheme, offering more security to lenders and, most importantly, bringing hope to First Time Buyers. The scheme encourages lenders to offer high loan-to-value mortgages by taking on some of the financial risks involved. For example, if a buyer defaults on their loan, the Government will step in to cover the cost.

    There are now 200 fixed-rate 95% deals available, in comparison to only five at the start of March, as lenders battle to attract low-deposit borrowers.

    The scheme is due to end on 31 December 2022, but the Government has said it may extend this if required.

    There is also the First Homes scheme, which was launched in England in June 2021 to some fanfare but has since received much less attention than the 95% mortgage guarantee scheme. In its latest attempt to help First Time Buyers onto the property ladder, the Government scheme allows First Time Buyers to buy a home with a discount of at least 30%.

    Similarly, it’s designed to help buyers purchase with smaller deposits and smaller mortgages, making it attractive to both borrowers and lenders.

    Properties for sale under the scheme must be new-build and must be offered to First Time Buyers with at least a 30% discount off their valuation. It is mostly aimed at providing affordable homes for local people, key workers, and First Time Buyers, and there is a range of criteria to make someone eligible for the scheme.

    Purchasers must be a First Time Buyer, have a household income of less than £80,000 (or £90,000 for those living in London), and be taking out a mortgage covering at least half of the property’s purchase price. Buyers must be purchasing a main residence and not a buy-to-let property.

    What’s more, First Homes properties are subject to price caps. Properties outside of the capital are limited to a purchase price of no greater than £250,000 after the discount has been applied.

    There are also the much longer-term schemes, such as Help to Buy, Shared Ownership and Right to Buy on offer to FTBs, all of which have a mixed record of helping First Time Buyers to get on the property ladder.

    Are First Time Buyers being priced out of the market?

    Despite all the schemes to help First Time Buyers achieve their dream of home ownership, it remains difficult for many.

    Research by Nationwide – the UK’s largest building society – found that First Time Buyers now need to save a massive 113% of their annual salary for a typical 20% home deposit.

    While property inflation slowed in September, house prices continued to increase at a double-digit pace, meaning that £22,613 has been added to the cost of the average home in just the last year, with the average house price up by 10% to £248,742. 

    What about the rest of the year and into 2022?

    With the end of the stamp duty holiday and furlough, rising energy prices, the potential for increased interest rates, and ongoing uncertainty about Covid and Brexit as we head towards winter, there is no knowing for sure how the property market will react.

    It has been booming since the market reopened in mid-May 2020, but some believe the boom can’t go on forever, and that a correction is due.

    Nationwide’s Chief Economist Robert Gardner said: “As we look towards the end of the year, the outlook remains uncertain.

    “Activity is likely to soften for a period after the stamp duty holiday expires at the end of September, given the incentive for people to bring forward their purchases to avoid the additional tax.

    “Moreover, underlying demand is likely to soften around the turn of the year if unemployment rises as government support winds down, as seems likely.

    “But this is far from assured.

    “The labour market has remained remarkably resilient to date and, even if it does weaken, there is scope for shifts in housing preferences as a result of the pandemic – such as wanting more space or to relocate – to continue to support activity for some time yet.”

    For First Time Buyers, there are reasons to be positive as we inch towards 2022, with more low-deposit mortgages on the market and various schemes on offer, but there is also the danger that home ownership will remain out of reach for too many.

    The 95% mortgage guarantee scheme will remain on offer for the whole of next year – and potentially beyond – as will other initiatives, but buyers using the revised Help to Buy scheme, which runs to 2023 and now includes regional caps, have been warned about little-known deadlines that could scupper their homebuying dreams.

    So, while the outlook for First Time Buyers looks better compared to the darkest days of the pandemic, the challenges of being priced out and struggling to raise a large enough deposit remain.

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