From new builds to no-deposit mortgages, here’s how hopeful first-time buyers can make the most of falling house prices – by Anna White.
First-time buyers have returned in earnest to the home sales market this January, taking advantage of discounted prices, falling interest rates — the Bank of England reduced the base rate from four to 3.75 per cent in December — and an increase in high loan-to-value mortgages.
The price of a flat in London is at its lowest since Covid-19 swept across the UK and the housing market was forcibly shut. Land Registry data shows the average price of a flat in the capital has fallen 10 per cent since its peak in September 2022 and now sits at £427,700.
The last time a flat was cheaper was in May 2020, when the homes sales sector had just reopened, having been closed for six weeks at the start of the pandemic.
“The market feels noticeably more vibrant than it did this time last year,” says Eva Bouzaki, manager of Stow Brothers in Hackney.
“The interest rate cut clearly had a positive impact on affordability. We are seeing more viewing inquiries from first-time buyers, increased new buyer registrations and busy viewing days.
“We are selling a one-bedroom flat in a period building in London Fields for £550,000 and have conducted 32 viewings so far this month.”
Her colleague Joseph Earnshaw in Walthamstow agrees: “There was a noticeable slowdown in activity last year due to the Budget and stamp duty rumours. Many first-time buyers adopted a wait-and-see approach. With no changes introduced at this level and the interest rate cut, they are now returning in greater numbers with lots of viewings of flats.”
A falling flats market could be an opportunity for starter home buyers
At the start of last year there was a spike in first-time buyer purchasers as stamp duty relief ended. Young buyers pushed to complete deals in the first few months of 2025 to benefit from the outgoing scheme. Since then the price of a flat has slipped month-on-month.
This is part of a longer-term trend. London property and moving costs are so expensive that many first-time buyers now get on the ladder later, skipping their first flat and buying a house. This makes it harder to sell apartments and studios.
There are also more small flats on sale as landlords, who are facing more tax and more red tape, try to exit the private rental sector. The supply of flats has dwarfed demand and therefore prices have fallen.
Alex Greaves, buying agent and founder of Ridgestone Property, says now is the time for first-time buyers to shop around.
“When a small flat tenancy ends we are seeing landlords trying to sell, there is a lot of choice right now for first-time buyers,” he says.
Buying agents are usually associated with high-end purchasers buying multi-million-pound homes but, to his surprise, Greaves has closed deals for first-time buyers recently.
“They have either lost out on their first home or been gazumped or are worried about overpaying,” he says.
It is indicative of how much choice there is for young buyers. His most recent client was renting in Wimbledon and has bought a two-bedroom flat in East Putney for £650,000 off a former landlord.
Low-deposit mortgages helping affordability
Despite softening property prices in London, affordability for first-time buyers is still stretched.
Data from Hamptons estate agency puts the average house price to income ratio on a first-time buyer purchase in the capital at 8.73 and 8.57 in outer London, meaning the average first-time buyer home costs nearly nine times a typical first-time buyer income.
Gareth Lowman, director at broker SPF Private Clients, says the bigger building societies such as Nationwide and Halifax will lend up to around six times earnings.
The result is that the majority of first-time buyers are still reliant on family money, according to agents. This has fed through into sentiment. A survey from consumer champions HomeOwners Alliance (HOA) found the aspiration to own is falling.
Only 64 per cent of those polled said they would like to own a home one day, down from 71 per cent the previous year and the lowest since the tracking began in 2013.
But Angela Kerr, of the HOA, says this is the time for optimism. “House prices look to be coming down in London and interest rates are predicted to drop over the next 12 months so mortgage rates should edge down too,” she says.
“Importantly, affordability — the biggest barrier for this cohort — improved midway through 2025 when lending limits were eased.
“So even if you checked how much you could afford a year ago, lenders are now being more flexible. It’s worth checking again.”
She also highlights new 100 per cent mortgages. “You borrow the entire value of the home you want to buy rather than having to save the minimum five per cent deposit upfront.”
For example, Skipton Building Society’s 100 per cent loan-to-value Track Record mortgage is designed to help renters buy without a deposit if they have a proven history of making the rent.
It’s available as a five-year fixed loan with a repayment rate of 5.18 per cent. The loan-to-value is 95 to 100 per cent, with any small deposit helping to bring down the repayment rate.
Is more help to buy on the way?
Sales of new-build flats in London have been hit harder than those of existing homes.
The lease scandal, soaring service charges, fears around cladding and the premium paid on a new-build property has made first-time buyers wary.
Bob Weston, founder of Weston Homes, says sales are down 50 per cent on four years ago. This has created a “stand-off” between the housebuilders and the Government, he says.
“The Government needs us to build 1.5 million new homes (mostly in the affordable and social housing bracket) but for every social home we build we need to make two private sales and there is not a market there,” he says.
Although the availability and affordability of flats are up, the long-term trend is still one of declining numbers of quality homes.
It only takes an uptick in buyers to tip the supply-demand imbalance and cause prices to rise again.
Weston, like many other developers, is calling for a replacement to the now scrapped Help to Buy scheme to get the new flats market moving and is proposing a new state-backed initiative where the developer takes on the cost, the Government banks the profit and the first-time buyer gets on the ladder.
“The Government and civil servants need to wake up and smell the coffee, the new homes market is frozen,” Weston says.
Greaves agrees the short-term dip in flat prices could easily swing back the other way. With rents high and prices falling, and a realisation that the Renters’ Right Act is not that onerous, we could see landlords buying back into the sector and putting pressure on supply.
Without action from ministers to convince developers to build more appropriately priced homes in London, this affordability window for first-time buyers could be short-lived.
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