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First-time buyers ‘seeking smaller homes amid higher rents and mortgage rises’

First-time buyers are increasingly favouring smaller properties as they adjust their expectations amid higher mortgage rates and look to get away from rapidly rising rents, according to a property website.

A report from Zoopla said that, while three-bedroom homes remain the most sought-after property type for people taking their first step on the property ladder, “there is a clear shift in (first-time buyer) demand towards two-bed flats”.

The average asking price of a three-bedroom first-time buyer home is £230,000, while the average price tag for a two-bedroom property is around £210,000, Zoopla said.

Its report said: “The rapid growth in house prices over the last three years means the household income to buy a three-bed (first-time buyer) home has increased by an average of £7,530 to a required household income of £55,900.

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“The increase for two-bed homes is lower – up £4,900 to an income of £51,000.”

Zoopla said the typical deposit needed to buy a three-bedroom first-time buyer home is £34,500, while that for a two-bedroom home is £31,500.

Its calculations are based on assumptions that first-time buyers will need a 15% deposit and be borrowing three-and-a-half times their household income.

Zoopla said the impact of higher house prices on first-time buyer affordability is not uniform, with buyers having faced bigger price increases in southern regions than northern regions.

It estimates that first-time buyers using a mortgage accounted for around one in three (34%) sales last year.

Higher mortgage rates and prices are pushing some first-time buyers to adjust their requirements, Zoopla suggested.

Executive director Richard Donnell said: “We expect first-time buyers to have another strong year in 2023, having been the largest buyer group last year.

“They need more income to buy but are starting to look for smaller homes and get away from rapid growth in rents.”

Mark Manning, managing director at Manning Stainton & Northern Estate Agencies Group, said: “The overall numbers of buyers searching may have fallen since a year ago but deeper analysis shows that, when comparing with a more ‘normal market’, such as that of 2018 or 2019, there is little change, particularly in first-time buyers, who remain out in numbers searching for that first step on the ladder.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, said some renters making the jump to buy a home will be likely “to place higher value on being able to fix a mortgage, so they’ll know what they’ll pay over the next few years”.

“Where they’ve been forced to move by a landlord who is putting the house up for sale, they’ll also be drawn by the prospect of being in control of deciding when they next move home,” she added.