Everything first time buyers need to know as Labour elected UK government

Labour has just won the July 2024 General Election, which marks the end of 14 years of Conservative rule. With this change, many aspiring first-time buyers will be wondering how a newly elected government will seek to help them.

While more detail will come over the coming weeks, the party has made a number of pledges around key issues. These include pensions, taxes, mortgages and other financial matters.

John Fraser-Tucker, the head of mortgages at Mojo Mortgages has shared what first-time buyers can expect.

'Freedom to Buy' scheme

John said: "Whilst a similar scheme is currently in place until June 2025, Labour has pledged to make the ‘Freedom to Buy’ scheme permanent. The scheme encourages mortgage lenders to accept a lower deposit as the government offers to step in should the first-time buyer struggle to pay.

"The government will step in and repay an element of what the mortgage lender would lose if the property was repossessed. For some, this might be their only path onto the property ladder.

"However, it's not without risks. With a substantially smaller deposit, buyers may face higher mortgage rates, leading to larger monthly payments and potentially thousands more in interest over time.

"While this scheme offers a valuable opportunity, it's important to weigh the long-term costs against the immediate benefit of homeownership."

Mortgage rates remain high

The average mortgage now costs £5,280 extra per year. John added: "First-time buyers also need mortgage rates to lower to help with their affordability. Five years ago, the average rate for a two-year fixed mortgage rate at a 75% loan-to-value (LTV) was 1.9%. Today, that same mortgage product averages 5.97% - a significant increase that affects affordability.

“To put this into perspective, let's compare two identical £200,000 mortgages over 25 years. With a 1.90% interest rate, you'd pay about £838 per month. But with a 5.97% interest rate, your monthly payment jumps to £1,278.

"That's an extra £440 each month, which adds up to £5,280 more per year." He continued: “There are, of course, many reasons for this - in the past five years, we’ve witnessed a global pandemic, a cost-of-living crisis and more, all of which have contributed to a rise in mortgage rates.”

House prices have increased by £111,000 in the last 14 years

John said: "Labour has also pledged to build 1.5 million new homes over the next parliament. However, these need to be economical. People need more affordable renting options, and there needs to be more starter homes for first-time buyers. The housing market has seen dramatic changes over the past 14 years.

"When the Conservatives came into power in May 2010, the average house price was £170,846. Today, it stands at £282,776 - an increase of over £111,000 or 65%."

What first-time buyers really need from a government

John claims: “First-time buyers are currently facing the hardest conditions in 70 years, so the newly elected government need to address this issue head-on. It’s also important that their solutions are not just quick fixes as this could lead to unsustainable debt for first-time buyers. Instead what they need is concrete, effective action that makes the dream of homeownership a realistic possibility.”