Home Property Finance & InvestmentMortgages Half of first-time buyers will need a 20% drop in house prices to afford a place on the housing ladder amid interest rate hike

Half of first-time buyers will need a 20% drop in house prices to afford a place on the housing ladder amid interest rate hike

by LLP Finance Reporter
3rd Aug 23 4:14 pm

The Bank of England (BoE) has today increased interest rates from 5% to 5.25%, adding further pressure to the housing market amidst soaring mortgage payments and living costs.

First-time buyers are bearing the brunt of this, with reports from Uswitch outlining that half of first-time buyers will need a 20% drop in house prices to afford a place on the housing ladder, while 27% are taking on mortgage terms of over 36 years in the first half of this year – compared to just 7% in 2021.

With just 1.2% of Brits aged 25-34 owning a home, and 15% already solely relying on their family to get onto the property ladder, a 14th consecutive rise in interest rates means the critical reliance on financial support from families will become increasingly sparse.

Senior Capital – the UK’s leading innovator in later-life lending products – argues that the interest rise will elevate this critical issue,  highlighting that a majority of those over the age of 50 are being forced to reconsider their financial situation due to soaring costs. A recent PPI study reported that the number of workers dipping into their retirement savings this year increased by almost 20%.

Despite over 62% of homeowners being over the age of 65, a majority are still struggling to access capital amidst inflationary pressures, with a large amount of wealth currently tied up in property. Almost 2-in-3 over-65 households have £125,000 or more in property wealth, with an additional 1-in-3 with £250,000 or more stuck in the value of their property, according to the Equity Release Council. Subsequently, equity release has become an increasingly attractive option for the older generation to access a ‘frozen’ pile of cash and distribute this down the generational line to support the younger generation with reaching homeownership.

Rudy Khaitan, Managing Partner of Senior Capital, explains how rising interest rates rise are set to affect UK homeowners and why equity release is becoming an increasingly attractive option to access a vital cash-injection amidst soaring costs across the board:

“Today’s rate rise will deal yet another significant blow to mortgage holders, with millions already reporting up to a 60% increase in their monthly repayments. For those who are planning to help members of their family with financial assistance, but are increasingly limited by rising interest rates, equity release can serve as an essential mechanism that could unlock life hanging amounts of capital securely.

“There is a growing need for new products that offer greater flexibility and choice, particularly in the relatively underserved later life lending market. For pensioners or anyone planning for their retirement, LTV is a critical component when assessing your quality of life during your later years, so it’s vital to investigate a multitude of options that can help ease your financial obligations, as remortgaging may not always be the right option.

“The right equity release mortgage product, particularly those that offer the greatest flexibility through limited prepayment penalties, can be the better option vs a more traditional mortgage when you want to unlock the value in your home without taking on additional monthly repayments.

“It allows homeowners to access the equity built up in their property, providing a tax-free lump sum to supplement regular income, whilst still retaining ownership and the right to live in their home for life or until they move into long-term care. This can be particularly advantageous for those who are retired or have limited income, as it offers financial flexibility and stability without the burden of servicing higher mortgage repayments.”

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