£900m slump in Scots first-buyer mortgages as interest rates soar

Data from UK Finance, the banking and financial services trade association shared with the Herald shows that the numbers joining the property ladder for the first time has slumped by 13% since 2021 from 8350 in the three months to December, 2021, to 7,210 in the three months to June this year.

First time buyers account for around half of all home loans agreed between between April and June.

And the value of lending to those wanting to buy their first home has dropped over the period since interest rates started going up from £4.874bn in the year to June, 2021, to £4.018bn in the year to June, 2023.

Housing and anti-poverty campaigners said that the figures showed how there was an urgent need for more affordable homes to tackle a homelessness crisis.

READ MORE: Loophole in ScotGov rent cap blamed as bill rises hit record levels

Last week ministers were warned that a homelessness crisis will become deeper after it emerged social landlords in Scotland are expected to build 4,500 fewer affordable homes for some of the nation's most vulnerable than was being planned over the next five years.

Scotland's Housing Regulator warned that registered social landlords are projecting a 15% reduction in their plans to build new homes over the next five years as they seek to make spending cuts.

It led to concerns over a potential failure to meet a Scottish Government target over the provision of affordable homes.

Meanwhile, the number of new social sector housing building starts has slumped to a seven-year low, with 3665 due to begin in 2023.

Mortgage holders and would-be homeowners were offered some relief last week after the Bank of England kept interests on hold at 5.25% for the first time in nearly two years.

Before that policymakers at the Bank of England had raised rates 14 consecutive times, making it even more expensive to borrow. The cost of borrowing has shot up since December 2021, when the base rate sat at 0.1% and you could find a two-year fixed-rate mortgage deal for just 0.89%.

Ruth Gilbert, national campaigns chair of housing campaigners Living Rent said the fall in the value of loans given to first time buyers shows why rent controls are needed to keep bills down and enable tenants to save towards a deposit.

She said it confirms that we need to both build more social housing and bring more existing rental stock into the public sector.

"This shows how hard it is for tenants to get a mortgage and buy a home. With interest rates soaring and the value of loans decreasing it is near-impossible for most renters to see home ownership in their future.

READ MORE: ScotGov rent freeze fails to stop debt soaring to record £190m

"More and more tenants are stuck in the rent trap: struggling to afford the high cost of private sector rents, with limited access to affordable social homes and all the while unable to save a deposit to become a homeowner. This is trapping thousands in an increasingly unaffordable tenure and forcing many tenants to grapple with the prospect of a lifetime of often poor quality private renting

"With fewer first time buyers this is putting enormous pressure on the private rental sector. The sector has exploded in size over the last decade and it is only getting bigger. But with fewer tenants leaving the sector and more and more entering it, this is putting pressure on our lack of housing and enabling landlords to hike up rents. 

Peter Kelly, director of the Poverty Alliance, said: “A just and compassionate society is one where everyone has a warm, secure home that meets their needs

“But these figures show how our unjust economy is making it harder and harder for people to get the housing they want.

“The Scottish Government can help by focusing on providing more homes for social rent, to give people decent, affordable accommodation that they provides them with a solid foundation to build for the future.”

According to separate analysis from the Bank of Scotland, first time buyer deposits have fallen by 5% averaging £38,871 - 21% of the purchase price. Meanwhile the average price of a first home is now £188,242 - up 1% in a year.

But the top nine most affordable places for new buyers across all local authority areas in the UK are in Scotland.

Inverclyde is the most affordable for first time buyers. Based on average earnings of £39,485 in the area, compared to the average first-time buyer price £112,112, those buying a first home in the area need to borrow just under three times the average salary.

The remaining eight 'most affordable' according to the bank overview is West Dunbartonshire, North Ayrshire, South Ayrshire, Stirling, Shetland, Renfrewshire and Clackmannanshire.

The least affordable area in Scotland is Midlothian, just outside Edinburgh, where first-time buyers face an average property price of £238,928 – nearly six times (5.8) average annual earnings in the area.

The bank says various challenges in the housing market, including increases to mortgage rates and periods of lower availability of mortgage deals - will have impacted many first-time buyers in recent months.

Inflation had become a further barrier to saving a deposit, the bank said – an aspect of new home ownership that they say was already difficult for many.

Graham Blair, mortgages director at Bank of Scotland, said: "Scotland offers some of the most affordable places for those looking to buy their first home, with Inverclyde, West Dunbartonshire and Ayrshire the most affordable places in Scotland and the UK overall.

“While lenders are ready to help – we provided around £5.5 billion in lending to first-time buyers in the first half of this year – it doesn’t change the fact that those buying their first property continue to face challenges. While the average deposit raised has dropped slightly compared to last year, at nearly £39,000, it is still a sizeable amount to get together and, overall, first-time buyer numbers fell in the first half of this year, compared to last year.

“However, the expected further fall in house prices this year - alongside stronger income growth - may somewhat offset higher interest rates, which will be welcome news to first-time buyers."

Housing minister Paul McLennan said: “Despite operating in the context of the UK Government’s disastrous mini-budget, Brexit, and over a decade of austerity and welfare cuts, Scotland continues to lead the way in housebuilding in the UK.

“Since 2007, we have delivered over 40% more affordable homes per head of population than in England, and over 70% more than in Wales. We have already delivered 13,354 homes towards our next target of 110,000 affordable homes in Scotland by 2032.

“Oversight and regulation of mortgage lenders is a reserved matter, the Scottish Government has repeatedly called on the UK Government to increase support for those most impacted by increasing inflation, interest rates and living costs.

“Our emergency legislation has led the way at a time when rents have been rising across the UK, stabilising rents to help tenants to stay in their homes.

“Since 1 April 2023, private landlords with a tenancy subject to the cap have been able to increase a tenant’s rent in-tenancy by up to 3% or can apply to Rent Service Scotland for approval of an increase of up to 6% in specific circumstances. Anywhere else in the UK, private tenants have faced a double whammy of uncapped rent rises both during and between tenancies.”