Interest Rate Rises and First Time Buyers

Interest Rate Rises And First Time Buyers

Interest Rate Rises and First Time Buyers

What you need to know

As a first-time buyer, navigating the housing market can be both exciting and overwhelming. One crucial factor to consider is the impact of interest rate rises. In this article, we will explore what interest rate rises mean for first-time buyers, how they can affect them, whether it is advantageous to buy property when interest rates are high, the best mortgage options for first-time buyers, and the potential outlook for house prices in the UK in 2023.

What does an interest rate rise mean for first-time buyers?

When interest rates rise, it means that the cost of borrowing money to purchase a property increases. This directly affects first-time buyers as it leads to higher monthly mortgage repayments. Additionally, higher interest rates can reduce the amount of money buyers can borrow, making it harder to enter the market.

With interest rates rising for the 13th consecutive time in a row, currently at 5% (as of July 2023), for first time buyers, this signifies an increase in the cost of borrowing money for a mortgage.

As rates go up, the monthly mortgage repayments for buyers will also rise. This can have a significant impact on their affordability calculations and monthly budgeting, potentially limiting the purchasing power. Make sure to plan and budget well!

How will interest rates affect first-time buyers?

Higher interest rates can significantly impact first-time buyers in several ways. Firstly, increased mortgage repayments can strain their budgets, potentially limiting the type and size of the property they can afford. Secondly, higher rates can make it more challenging to obtain mortgage approval, particularly for those with smaller deposits or limited credit history. This can delay or even deter first-time buyers from entering the market.

It is crucial for buyers to carefully evaluate their financial situation and determine whether they can comfortably manage the higher repayments without compromising their financial stability.

Is it good to buy property when interest rates are high?

Buying property when interest rates are high requires careful consideration. On one hand, higher rates can translate to more expensive mortgage repayments. However, it’s important to note that interest rates fluctuate over time, and locking in a fixed-rate mortgage during a high-interest period can provide stability and protection against future rate hikes. Additionally, high-interest environments sometimes coincide with more favourable house prices, creating opportunities for buyers to negotiate better deals.


What type of mortgage is best for first-time buyers?

Several mortgage options cater specifically to first-time buyers. Two popular choices are fixed-rate mortgages and Help to Buy schemes. Fixed-rate mortgages provide stability, as the interest rate remains constant over a predetermined period, allowing buyers to plan their finances effectively. Help to Buy schemes, on the other hand, provide government-backed assistance, such as equity loans or shared ownership arrangements, helping first-time buyers enter the market with a smaller deposit.
For more detail on how to save for a first time mortgage and some good mortgage options currently out there, see our article here

Do first-time buyers get better mortgages?

First-time buyers may have access to specific mortgage deals designed to support their entry into the property market. Lenders often offer competitive rates and flexible terms to attract first-time buyers. Additionally, government initiatives, such as shared equity schemes or Stamp Duty exemptions, can provide financial benefits exclusively for this group. However, the specific terms and conditions of mortgages will depend on the buyer’s individual circumstances, credit history, and deposit size.

Will house prices drop in the UK in 2023?

Predicting house prices is challenging, as they are influenced by numerous factors, including economic conditions, government policies, and market trends. While it is impossible to provide a definitive answer, it is worth noting that market conditions can vary regionally. Generalised predictions suggest that house prices in the UK may experience some moderation or stabilisation in the rest of 2023, following a period of significant growth in recent years. In addition, with continuous interest rate rises, this some speculate that this will offer more negotiating opportunities to get a deal.

However, localised factors and market dynamics can result in varying outcomes across different regions.

Still Excited about Buying Your First Home?

Navigating the implications of interest rate rises as a first-time buyer is a crucial aspect of entering the housing market.

When interest rates rise, first-time buyers face the prospect of higher monthly mortgage repayments and potentially reduced borrowing capacity. This can strain their budgets and limit their options in terms of property choices. However, it is essential to consider the long-term benefits and stability that can be gained from locking in a fixed-rate mortgage during a high-interest period.

While high-interest environments may present challenges, they can also offer opportunities for savvy buyers. Timing the market is a complex task, but it’s worth noting that high-interest periods can sometimes coincide with more favourable house prices, allowing buyers to negotiate better deals and potentially secure their desired property at a more affordable price.

It is important for first-time buyers to carefully assess YOUR financial situation, seek professional advice, and consider various mortgage options specifically tailored to their needs. Options such as fixed-rate mortgages and government-backed schemes like Help to Buy can provide stability, financial assistance, and favourable terms for first-time buyers.

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Ultimately, the housing market is influenced by numerous factors beyond interest rates, and it is challenging to predict with certainty how rates will evolve or how house prices will fluctuate. However, staying informed, being financially prepared, and taking advantage of favourable opportunities can help first-time buyers make informed decisions and embark on their homeownership journey with confidence.

Remember, every buyer’s circumstances are unique, and seeking professional advice from mortgage advisors and real estate professionals can provide invaluable guidance throughout the process. By understanding the implications of interest rate rises and staying informed about the market, first-time buyers can navigate the challenges and make sound decisions that align with their long-term goals.

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