Mortgages: rates and payments jump 61% in 5 years - experts share their tips for first-time homebuyers

• First-time buyers face a 61% increase in mortgage payments, straining budgets and making it harder to save
• High demand and limited supply have driven up property prices, requiring buyers to take larger loans
• Lenders have also become more cautious, requiring larger deposits and offering less favourable terms
• Despite the challenges, mortgage and finance experts offer their practical tips
• They say that homeownership is still achievable with careful planning and informed decisions

Those entering the property market for the first time can expect to pay approximately £400 more per month for their mortgage compared to five years ago, analysis suggests.

Calculations by property website Rightmove indicate that the average monthly mortgage payment for first-time buyers has increased by 61% since the last General Election in 2019, rising from £667 to £1,075.

These figures assume that first-time buyers have a 20% deposit, take out a mortgage with a 25-year term and opt for a five-year fixed-rate mortgage at the average rate.

Rightmove's research used the average asking prices of typical first-time buyer homes, which have two bedrooms or fewer.

Across Britain, first-time buyers now face an average home price of £227,757, representing an increase of nearly 19% since 2019, according to Rightmove.

In the north-west of England, asking prices for first-time buyer homes have jumped by a third (33%) since 2019, while London has seen the smallest percentage rise of just 6% over the past five years, according to the website.

London house prices are typically higher than elsewhere in Britain – and the average price tag on a first-time buyer property there according to Rightmove’s data is over half a million pounds.

What does it mean for first-time buyers?

For first-time buyers, the steep rise in mortgage payments means higher monthly financial commitments, and buyers now need to allocate a larger portion of their income towards mortgage payments, potentially straining their overall budgets.

This can make it harder to save for other goals and manage living expenses, and could discourage some from entering the housing market altogether.

Rising interest rates have had a significant impact on mortgage rates, with central banks worldwide increasing interest rates to combat inflation, making borrowing more expensive and driving up mortgage rates.

Property prices have also continued to soar in many regions due to high demand and limited supply, meaning buyers need larger loans, leading to higher monthly payments.

And economic uncertainty also plays a role - the pandemic and subsequent economic instability have led to fluctuating market conditions, affecting both interest rates and property prices.

If all that wasn’t enough, tighter lending criteria - with lenders becoming more cautious, often requiring larger deposits and offering less favourable terms - have translated to higher costs for borrowers.

What does the future hold?

“Predicting the future of mortgage rates and house prices is always challenging,” says Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, “but there are a few key indicators to watch.

“Economic policies are one such indicator; if inflation is brought under control, central banks might lower interest rates which could reduce mortgage costs.

“Another factor is market correction. House prices may stabilise or even decrease if demand falls or if there’s an increase in housing supply.

“Additionally, government interventions such as subsidies or incentives for first-time buyers could influence future trends by making housing more affordable. However, it’s important to remain cautious as market conditions can be unpredictable.”

Other experts are similarly cautiously optimistic. Yiannis Zourmpanos, consumer trends analyst, financial consultant and senior contributor at Bountii, says “it's not all bad news,” and “rates may go down a bit by the end of next year.

Price hikes “could slow down too”, he adds, saying that “even a little bit of improvement would help make homes more affordable to buy.”

What the experts say

As first-time buyers navigate the challenging housing market, expert advice becomes invaluable.

We spoke to a number of mortgage and finance specialists, and asked them to share their top tips to help new buyers manage their finances, secure favourable mortgage terms and make informed decisions.

What stands out is their optimism and their emphasis that despite the challenges, homeownership isn't quite out of everyone's reach just yet.

Chris Demetriou, financial expert, qualified accountant and co-founder of Archimedia Accounts

“There are still some things that people can do to make buying a home more affordable.

“First, it's important to save as much money as possible for a down payment. Using programs like the Lifetime ISA or Help to Buy can also help. It's a good idea to shop around and compare different mortgage deals to find the best one.

“Sometimes, looking at houses in different areas can help you find something more affordable. For example, a young couple I worked with wanted to buy a home in London but found it too expensive.

“They saved aggressively and used the Help to Buy program to get some extra money. They also looked at houses in nearby areas, which were cheaper. By saving money, using help programs, and being flexible about where they wanted to live, they were able to buy their first home.

“The 61% increase in mortgage payments for first-time buyers since 2019 is a big challenge. But with some smart strategies like saving more, using help programs, and finding good mortgage deals, it's still possible to buy a home. It takes patience, planning, and being smart with your money.”

Steve Griffiths, Chief Commercial Officer at The Mortgage Lender

“The journey to buying a property can be a long one, and it can easily be complicated by the ebbs and flows of the housing market, particularly when we consider the current landscape.

“Although being adaptable and regularly checking in on the base rate will serve renters well in the long term, it’s understandable that so many are feeling frustrated by their options.

“This really highlights just how vital it is to speak to a broker early about your property ambitions. They can help break down how much you can afford, as well as any other available options.

“If it’s not the right time to buy now but you plan to in the future, make sure you are still working towards becoming ‘mortgage ready’. This will ensure when the time is right you are prepared to take that next step.

“Even in challenging times, potential buyers should remember that there are lenders that can support them, and a broker will be key in being able to help find the best deals.”

Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor

“Increase your deposit; the larger your deposit, the less you need to borrow which can reduce your monthly payments and improve your mortgage terms.

“Improve your credit score – a higher credit score can help you to secure a lower interest rate. To do this, ensure your credit report is accurate and work on reducing any outstanding debt.

“Also, consider exploring government schemes such as the Shared Ownership scheme or The First Homes scheme which can make homeownership more affordable. 

“Be sure to shop around and don’t settle for the first mortgage offer you receive. Comparing deals from various lenders, including credit unions and online banks will help you to find the best rates and terms.

“Finally, consider a longer term. While this means you’ll pay more interest over time, opting for a longer mortgage term can lower monthly payments. 

“To find affordable mortgage deals, consider using a mortgage broker who can help you navigate the multitude of options and find a deal that suits your financial situation.

“Decide whether a fixed-rate or variable-rate mortgage is best for you; fixed rates offer stability while variable rates might start lower.

“It’s important to be aware of any additional fees, such as arrangement fees, which can add to your overall cost. Sometimes lenders are willing to negotiate on interest rates or fees, especially if you have a strong financial profile.”

Yiannis Zourmpanos, consumer trends analyst, financial consultant and senior contributor at Bountii

“If you're just starting out, some tips that could save you money: look at different mortgage lenders to find the best deal, consider an adjustable-rate loan if you plan to move soon, see if any assistance programs in your area can help with a down payment, or think about co-owning with family or friends to share costs.

“Most important is setting a strict budget and acting fast when you see a home that fits it. The market is still tough right now but that doesn't mean your dream of ownership can't happen. Stay determined - you'll get there!”

What mortgage challenges have you faced? What strategies have worked for you? Are there specific tips or advice you would like to share with others? Share your thoughts, experiences and questions about navigating the market as a first-time buyer in the comments section.