Cost of living: first-time buyers will need to earn even more to buy a home

The average first-time buyer will need an additional £12,250 of income – compared to a year ago- to buy a home, according to the latest House Price Index from Zoopla.

The research carried out by the property portal also revealed those hoping to live in London will need an additional £35,000 due to predicted higher mortgage rates.

The research reveals that while demand has remained above the five-year average, the impact of higher mortgage rates will have a growing impact on market activity in, especially for first time buyers and home buyers in southern England.

As inflation and interest rates continue to climb, people will need a 10 per cent rise in salary just to maintain their standard of living, according to the Bank of England.

Trying to purchase a property will therefore only add even further financial strain.

As more people are priced out of the market – especially in areas where the house prices are highest – it is predicted there will be less demand from first time buyers.

And they may well affect house price growth.

Some outpriced first-time buyers will look to buy smaller, lower value homes as rising interest rates impact affordability, according to Zoopla.

They may also consider moving further afield as post pandemic circumstances allow many to continue hybrid working.

Despite higher living costs, post pandemic factors such as desire for more space continue to stimulate demand as new sales agreed remain on a par with 2021. 

A key factor is that higher mortgage rates for new loans, which have more than doubled since January 2022, are yet to impact the market.

Richard Donnell, director of research at Zoopla, says: “The housing market has been resilient to the rising cost of living so far.

“The new energy price cap will add to the pressure facing households especially those on lower incomes.

“We see the recent jump in mortgage rates having a greater impact on housing market activity and prices moving ahead. 

“First time buyers on lower incomes, those looking to trade-up using a bigger mortgage and buyers in the south east of England will all feel the greatest impact on affordability.”