Projections from the Office of Budget Responsibility (OBR) around earnings growth, base rate and house prices mean that the barriers for first-time buyers will grow, Leeds Building Society has said.
Research from the mutual earlier this year showed that 426,000 fewer first-time buyers would be able to buy their first home in the next five year compared to the past 40-year average if economic predictions come to fruition.
The mutual said that the recent OBR forecast implies that “conditions are becoming even tougher” and more could “join this group of lost first-time buyers”.
Leeds Building Society pointed to real earnings growth remaining negative this year and only turning “marginally positive from 2024 to 2027, the base rate staying higher for longer and the average house price expected to reach £300,000 by the end of 2028.
The OBR said that it expected housing transactions to fall by 6.9% next year, which is a deterioration from five per cent fall forecast earlier this year.
Leeds Building Society said that “persistently higher than anticipated inflation levels” would continue to pressure prospective buyers through heightened mortgage rates and limited ability to save a deposit.
It added that a reprieve from lower house prices has been “thwarted” as house prices are expected to recover in 2025.
Leeds BS: Three key action points
Leeds Building Society has called for action in three key areas to better support first-time buyers, which include building more homes of all types, increasing routes to home ownership and supporting people to save for a deposit.
On the housebuilding side, the mutual said that mandatory housing target should be restored along with a target for affordable housing in local authorities and planning system reform.
Looking at affordable paths to homeownership, it said that renter’s reform, a well-managed and regulated Build to Rent sector and more “bridges to ownership” like shared ownership would be crucial.
Support for deposit savings includes improving the Lifetime ISA scheme to better mirror house price increases and bringing out measures to allow people to build and improve credit scores by including rent payments.
Homeownership will just be ‘a dream for many people’
Richard Fearon, chief executive officer of Leeds Building Society, said: “The greatest influence on affordability for first-time buyers is the toxic combination of rising deposit requirements and mortgage interest rate increases over the last 18 months.
“We recently highlighted that 426,000 people – or 233 per day – will be unable to buy their first home over the next five years if the economic projections became reality. Sadly, the new OBR forecasts reveal homeownership will remain a dream for an even higher number of people.”
He continued: “It’s no surprise that home ownership has fallen by a third among young people, and that housing transactions are set to fall by 6.9% over the next year, when the hurdles to achieve homeownership are so high.”
“We’re taking steps ourselves to support aspiring homeowners, and we welcome the support brought forward to help the housing sector plus the extension of the Mortgage Guarantee Scheme.”
Fearon added: “However, every generation deserves a place to call home, and with first-time buyer affordability at its worst point for many decades, the Chancellor needed to go further.”
“Without action, we risk creating a lost generation of first-time buyers. We believe the government can, and must, do more to support first-time buyers by building more homes of all types, by increasing affordable routes to home ownership, and by helping potential homeowners save for their deposit.”