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16 Nov 2019

First-time buyers: here's how you can buy a three-bedroom house rather than a flat

Longer-term mortgages and government schemes aiding first-time buyers

First-time buyers are increasingly looking to buy bigger homes to live in for longer, with 40-year mortgage terms and incentive schemes seeing flats fall in popularity.

The property portal Zoopla says first-timers are now searching for houses they can live in for a decade or more, rather than simply trying to get on to the property ladder any way they can.

Here, we explain how buyers are finding the cash to purchase larger houses, and explain how much an upgrade really costs.

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First-time buyers seeking bigger homes

Zoopla says that two thirds of first-time buyers are now searching for houses rather than flats, with three-bedroom properties topping the majority of wish lists.

The portal says 42% of buyers are looking for a three-bedroom home, while 34% are seeking a two-bedroom property.

Faced with sky-high property prices, London buyers are most realistic about their aims, at a time when it's getting more expensive to get on to the property ladder.

Zoopla says the average first-time buyer now needs a household income of £54,400 to buy a home - that's up 9% on just three years ago.

Richard Donnell of Zoopla says: 'First-time buyers are now thinking about staying in a property for 10-12 years rather than a shorter period. They're aiming higher and want to save up and get a first home they can grow into.'

Bear in mind that Zoopla's data is what properties prospective buyers are looking at - not what they're actually buying.

How much extra does a bigger home cost?

Logic suggests that the bigger the home you buy, the more expensive it'll be. But by how much varies wildly depending on location.

We've crunched the numbers and found that the price gap between a flat and a semi-detached home varies from just £38,075 in the North East of England to a more substantial £161,145 in London.

Price gap between a flat and a semi-detached home

RegionPrice gap
South East£141,907
East of England£100,648
South West£92,535
West Midlands£63,452
East Midlands£62,979
North West£50,848

The gap is even wider when it comes to buying a detached property.

All areas except Wales and the North East have a price gap of at least £100,000 between the average cost of a semi-detached and detached home.

Price gap between a semi-detached and detached home

RegionPrice gap
South East£212,611
East of England£143,260
South West£137,657
West Midlands£131,679
North West£109,319
East Midlands£104,190

Source: Land Registry, based on data from September 2019

How are first-time buyers affording more expensive homes?

The truth is that first-time buyers aren't getting richer, and homes aren't getting more affordable.

Instead, the secret primarily lies in the availability of credit.

Mortgage terms are getting longer

Rates on 90% and 95% mortgages are very low at the moment, but the biggest factor is that mortgage terms of 30, 35 and even 40 years are becoming more common.

By stretching the length of a home loan, buyers with lower earnings can more easily meet the affordability criteria set out by banks.

As shown in the chart below, the number of deals theoretically offering maximum terms of 40 years has risen significantly in the last year.

Banks are offering bigger loans

In addition, there are signs some lenders are becoming more flexible with how much they'll lend.

Generally speaking, banks will let you borrow up to 4.5 times your annual income (so if you earn £30,000 you could borrow up to £135,000).

Now though, some lenders are moving to offer borrowers five or 5.5 times their income, subject to minimum earnings or working in certain professionals.

Is Help to Buy encouraging buyers to go bigger?

The Help to Buy scheme, under which the government offers buyers in England an equity loan of up to 20% (40% in London), is also a big factor.

The loan allows first-time buyers to put down a deposit of 5% and get a 75% mortgage (or 55% in London), thereby boosting how much they can borrow.

Data from Homes England shows that in the first six years of the scheme, flats were the least popular type of home bought by first-time buyers, with semi-detached homes topping the charts.

Analysis: is this good news for first-time buyers?

In an ideal world, homes would be becoming more affordable, making it easier for first-time buyers to buy a property without over-stretching their finances.

Ultimately, though, it's unlikely that house prices will drop significantly any time soon.

This means that banks will need to be dynamic in their mortgage offerings to help buyers with small deposits, and the government may need to continue to offer incentive schemes.

Longer mortgage terms

40-year terms can be a good idea in theory, especially as people are now living longer than they once where.

But while 40-year deals are theoretically widely available, they're still in their infancy.

At this stage, it remains to be seen quite how many buyers are being offered the maximum term, and the age limits placed on some deals will render such terms available only to the youngest borrowers.

Bigger loans for first-time buyers

Likewise, high income-multiple mortgages allow first-time buyers extra leeway, but the truth is they're still considered risky by the Bank of England.

The Bank currently limits mortgages with a loan-to-income ratio of 4.5 or more to 15% of any bank's new lending.

In a paper released earlier this year, the Bank suggested that it could loosen these rules if house prices rise significantly, which would alleviate one headache for buyers but leave them with another.

Help to Buy

The success, or lack thereof, of the Help to Buy equity loan scheme provokes great debate.

The government points towards the scheme's proven popularity with first-time buyers, while critics say it overstretches buyers and results in higher house prices.

The scheme is set to change in 2021, with regional price caps being introduced.

This could theoretically help level the playing field and give lower earners a better chance of buying a home, but it's too early to predict quite how successful the new rules will prove to be.

How to buy your first home

Whether you've just started saving for a deposit or are ready to find a mortgage, our comprehensive advice guides can help you with every step of buying your first home.

As a starting point, check out the guides below: