First-time home buyers are returning to the UK housing market, particularly one area they have avoided for some time. Of the house hunters shopping in London, 48% were first-time buyers this year and it was the largest proportion since at least 2010. The increase in attention on the capital city is partially due to lower interest rates on available mortgages. At the point when interest rates were historically low during the pandemic, buyers were looking outside of London, not in it. Now a shift has occurred and as mortgage rates have become more affordable, home buyers are shopping, even first-time hopeful home buyers in the capital.

The report on first-time buyers was compiled on the data from Countrywide estate agents. The number of first-time buyers shopping homes in London was up 41% from 2023.

The analysis of the Countrywide data was completed by Hamptons. They reported first-time buyers were spending an average of £443,550, up £39,360 over last year.

Aneisha Beveridge, research head at Hamptons, remarked, “Falling mortgage rates are starting to turn the tide on the rising number of first-time buyers leaving London. Lower mortgage payments have pulled the cost of buying back below renting, bringing relief to those looking for their first home in the capital.

“First-time buyers with deeper pockets are looking again at London, choosing Clapham over Crawley and Wembley over Wycombe.”

Recently, a growing competitive lending market has developed as optimism grows for a second rate cut this year to the standard base interest rate. The first happened 1 August, with the previous one in March 2020. The wait for the most recent reduction to the base rate has been anxiously awaited with the peak rate this year being 5.25%, a sixteen-year high.

The Bank of England’s Monetary Policy Committee (MPC) voted for a 0.25% reduction to take the rate to 5.0%. The next opportunity for the rate to be cut is only weeks away on 19 September which is the day following the next release of data on inflation. The expectation is for inflation to stay slightly above the Bank’s target of 2.0% set by the Bank. Should the report reveal inflation has fallen and perhaps the concerned sectors such as the services sector showing a decline in inflation, then a rate cut could occur. 

There is not a scheduled committee meeting in October, so most experts believe the month of November will be the most likely meeting for the MPC to have a majority vote for a rate cut. 

Many borrowers are hoping for even better rates following a second rate cut by the MPC. Waiting might not be necessary. As noted earlier, lenders are currently competitive for the attention of borrowers. There are some mortgage offers below the level of the base rate after a second cut of 0.25%. 

Of course, the lowest and best interest rates are reserved for borrowers looking to mortgage or remortgage with low loan to value ratios and favorable credit histories. For instance, Nicholas Mendes, a mortgage broker with John Charcol remarked that only weeks ago the best deals were reserved for those with a 40% deposit, but now there are attractive lowest rate deals for those borrowing 75% of the property value with 25% deposits. 

Mr. Mendes said, “Mortgage rates are expected to continue falling in the coming months, despite the anticipated rise in inflation. Markets are pricing in further reductions in the Bank Rate, and lenders have room to keep lowering rates. We could potentially see a five-year fixed rate around 3.5% by the end of the year.

“For higher loan to values, rate reductions may happen more gradually, but we might see rates between 4.2% and 4.5% by year-end.”

Again, the key take away is the best deals are reserved for home buyers with larger deposits. However, there are attractive deals to be found by borrowers for mortgages or remortgages now no matter if or when the next rate cut vote happens.