The impact of the cost of living crisis on first time buyers

The cost of living crisis is inescapable. It is creeping into all aspects of everyone’s lives. First time buyers are no exception.

As someone who has been saving for their first home for a while now, this feels like a set back. The amount I can save for a deposit each month has decreased and interest rate rises are making mortgages less attractive.

I’m sure I’m not alone in having these fears. This post is designed to explain the impact the crisis on first time buyers and what steps you can take to mitigate the impact.

This post will include:

  1. Why the crisis impacts first time buyers
  2. The size of the impact
  3. Buying your first home during the cost of living crisis
  4. Calculating how much you can afford

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Why the crisis impacts first time buyers

The cost of living crisis impacts all areas of your personal finances. That means saving for and buying your first home too.

There are two main ways it will impact first time buyers.

Firstly, it will impact how much they can save each month for a deposit. If your budget is being squeezed, you’ll have less disposable income to put aside to savings and investments each month.

Secondly, it may impact your ability to get a mortgage. Affordability checks could become more rigorous and mortgage rates may seem more onerous. This means you may need to earn more than you previously would have done to be offered the same mortgage deal.

The size of the impact

The impact will vary for everyone depending on your personal circumstances.

For example, if you manage to negotiate an inflation-linked pay rise, you may not see much difference at all.

Others may find it much harder.

If your income doesn’t change but all your outgoings are increasing, you will have less money left over each month – unless you can find ways to cut your expenses.

As we don’t yet know how long the cost of living crisis will continue for, it is hard to say how long you will be negatively affected for.

Looking at mortgages specifically, it is also hard to tell how big the impact will be. But, they are likely to be affected.

Inflation is currently very high. The latest measure put UK year-on-year inflation at 5.5%. We already know this increases our bills and shopping costs, but it may also affect your mortgage offer.

Inflation inadvertently affects mortgages because higher levels of inflation tends to lead to higher interest rates.

Rising interest rates tend not to be a good thing for borrowing of any kind.

In February, the Bank of England raised interest rates to 0.5%. This is still very low, so the difference to mortgages won’t be as stark yet. However, many economists are predicting further rises throughout the year.

Interest rate hikes are bad for mortgages. Those on a variable rate deals will see their rates increase in line with the Bank of England’s changes. While those on fixed deals won’t be affected by higher interest rates until their deal expires.

For those looking to get a mortgage, the rates on offer will likely be less attractive than before the rates rose. Take this into account when looking into mortgages.

Buying a house during the cost of living crisis

Despite all the doom and gloom, try not to be disheartened. Don’t lose hope of getting on the property ladder. It may take a bit more time.

The most important thing is to keep up to date with your rent, bills and other necessary expenses. If you have money left after those expenses, then keep adding to your savings.

You may have to temporarily reduce the amount you save each month. Don’t worry if this is the case. Continuing to save anything – even just £10 or £20 a month – reinforces your savings habits and will help make it easier for you to increase the amount when you can.

If you’ve got your deposit ready and can buy a home at the moment, you may be worried about getting a mortgage don’t panic. It is certainly possible to get a mortgage.

However, if your budget is more stretched you may start questioning how much you can reasonably afford to pay each month.

Calculating how much you can afford

The amount of deposit you can afford should be fairly clear. Simply put, it’s however much you’ve managed to save.

Once you know this, the total amount you can pay for a property will be determined by the size of mortgage you can take on.

Therefore, working out how much you can afford to borrow as a mortgage is key.

There are tools available which allow you to calculate your repayments. This can really help you get an idea of how affordable a mortgage is.

Put the repayment number into your monthly budget and see if it works. You could try comparing it to the rent you pay now.

Some find their mortgage repayments are actually cheaper than the rent they pay. In cases like this, you may find buying a house will actually help you cope with the cost of living increases.

This will of course not be the case for everyone. It will depend on how much rent you currently pay and the mortgage you are taking on.

If you’re not sure where to start, you could take a look at how much you are likely to be able to afford based on your income.

Don’t forget to follow me on social media @Katie20Percent to keep up to date with all my latest posts.

Did you know I offer freelance writing services and personal finance workshops and talks for schools, workplaces and organisations? I also regularly feature in the media. Get in touch via or reach out on Twitter @Katie20Percent if you’d like to find out more.

If you found this post about how the cost of living crisis affects mortgages please ‘like’ and share it on social media or with your friends. Do you worry about being able to get a mortgage or keeping up with the repayments? Comment below – I’d love to hear your thoughts!

3 responses to “The impact of the cost of living crisis on first time buyers”

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