Is coronavirus good or bad for first-time buyers?

If you’re hoping to buy your first home any time soon, you’re probably trying to work out what impact coronavirus has on your plans.

The Multiply advice team has been working on it too. Here's our take on the current outlook for first-time buyers.

The headlines

The situation is not simple; it’s a mixed bag of both positives and negatives, as well as some uncertainties that are hard to predict.

Your plans to buy a home will be influenced by three key factors:

1. Your own personal financial situation
2. What the banks do
3. What happens to house prices

Your financial situation

This is all about the money you’re earning and how much you have in savings and investments.

• Negative: Lots of people have already seen their income reduced. Unemployment could go higher and wages may decrease. You can usually get a mortgage for up to five times your household income. If your income is affected, it might mean you can’t borrow as much as you originally planned to.
• Negative: People whose incomes are affected are more likely to be eating into deposit savings to fund day-to-day living. If you’re living off savings at the moment, it could push back your target date for buying your home.
• Neither: Most first-time buyers have their deposit savings in cash savings accounts, so haven't been as affected by stock market falls. You might be getting a reduced interest rate on your savings account, but it's nowhere near as drastic as the volatility we've seen in the stock market.

What the banks do

This affects how big a mortgage you’ll be able to get, and at what rate.

• Positive: Bank of England interest rates are very low at the moment and are generally expected to stay there for the foreseeable future. This is in order to stimulate the economy. There is a connection between these rates and the mortgage rates offered to borrowers, so you can expect mortgage rates to be low for a long period of time.
• Negative: Banks are more likely to lose money from businesses going bust and failing to repay their loans. That might mean they reduce the risk they take with any new lending. If so, we’ll see banks getting stricter with mortgage assessments and asking for higher deposits (Nationwide is already doing this).
• Could be either: Some lenders are working through a backlog of applications and may not currently be open to new mortgage applicants. You might have to wait a bit longer before applying.
• Negative: If you’ve been furloughed, some banks might not take the furlough pay into account for your mortgage application. The bank might also ask that you wait until your longer term employment status is better understood before applying.

What house prices do

House prices are driven by supply and demand, which is tricky to predict. But here goes:

• Negative: In the short term, people may be less likely or willing to sell their homes, so this could reduce the short term supply of typical first-time buyer properties significantly. This could actually push house prices up if the demand stays strong. This would be deemed a ‘sellers market’.
• Positive: On the other hand, in the short to medium term, if people are less keen to buy then house prices may fall due to a drop in demand. Existing homeowners who cannot defer selling might then be forced to accept a lower price. This would be deemed a ‘buyers market’.

What to do about it

The only thing we know for certain is that the short term future of the property market is uncertain.

We will be following all the latest developments for first-time homebuyers, and we’ll keep you in the loop with our opinions as new information comes to light.

In the meantime, it's important that you monitor your finances and keep to your plan. You should also regularly check in to make sure that you’re getting the most up to date advice.