Rate rise stretches affordability but first time buyers undeterred

With July’s rate rise, affordability is further stretched, but it won’t deter many first time buyers, according to new report.

The quarter point rise in base rate is intended to try and cool the property market, but a new report indicates that it is likely to have little effect. First time buyers remain determined to make that first step onto the ladder and rising interest rates, while hurting their pockets, won’t ultimately stop them.

While affordability remains a major issue, Bradford & Bingley’s fourth annual First Time Buyer Report, reveals that many first time buyers are simply desperate to get onto the ladder. Nearly half (46%) are worried that house prices will become even more unaffordable the longer they wait and a quarter feel if they don't buy now they never will. Such urgency is making people anxious to buy at almost any cost.

Other key findings include:

79% believe interest rates will rise over the next 12 months
79% are in debt (up from 49% last year), with 17% owing more than 15,000
35% are seeking financial help from their parents
20% are putting in extra hours with a further 12% holding down second jobs

The largest survey of first time buyers reveals that many are working longer hours, seeking help from their families and forsaking holidays and nights out to make that first hike up on the ladder.

The quarter point rise means that first time buyers will now have to find an extra £25 per month on a typical £120,000 mortgage.

Andy Wiggans, director of mortgages for Bradford & Bingley, said: “Having to find an extra £25 per month, at a time when finances are squeezed, is going to hit first time buyers’ pockets but our research shows it’s not going to deter them. With concerns over future affordability and property prices many are doing everything they can to get on the property ladder as soon as they can.

“While there are now many flexible, competitive mortgage products on the market which can help people make that step up, first time buyers have to be careful not to over-extend themselves, especially as there may be further rate rises to come.”