British first time buyers benefit as mortgage approvals rise

Created: 10 Mar 2022

Mortgage approvals across the UK rose above pre-pandemic levels for the first time in January 2022 with first time buyer (FTB) activity experiencing significant rise in view of institutional measures designed to support this key home buyer group.

The FTB market grew markedly in 2021, accounting for real estate value worth £86.1bn, which was up £27.3bn relative to 2020 based on research from comparison site GetAgent. In London, this figure was approximately £25bn in market value, an increase of £9.9bn over 2020. The average price FTB paid rose 9 per cent from £199,251 in 2020 to £216,836 in 2021 with growth from 295,390 entering the market in 2020 to 397,232 in 2021. 

This momentum looks set to continue in 2022 with FTBs set to benefit from the Bank of England renouncing its mortgage affordability test. This entails rules instituted in the wake of the 2008 financial crisis which compels banks to enforce strict mortgage repayment stress tests on borrowers allowing for interest rate rises. As such, mortgage payers must  prove they can afford rates of 7 per cent or higher when taking out a 2 per cent loan.

Whilst these changes will take up to a year to implement, this move is set to strengthen FTB buying power by over 16 per cent from being able to borrow 5 times their income currently, to 5.8 times their income. With interest rates expected to rise to fend off inflation, this is an important measure with the Capital Economics consultancy suggesting it will enable hundreds of thousands of first-time buyers to purchase a home each year. 

Across the wider market, lenders have bolstered mortgage approval rates with British borrowers incurring £5.9bn in mortgage debt in January 2022, a 48 per cent increase from the £4bn in December 2021 and in excess of the £4.3bn pre-pandemic average. These figures reflect an uptick in asking prices, up 2.3 per cent in February to a record £348,804, according to Rightmove. Moreover, it represents higher mortgage approval numbers too with the 74,000 in January exceeding the pre-pandemic average up to February 2020 of 66,700.

The average first-time buyer mortgage is £172,000, according to the Office for National Statistics. A 16pc rise in borrowing power would add £27,520 to their budget. In London, where buyers must borrow an average of £309,000 more to get on the ladder, they would be able to borrow almost £50,000 more.