Interest rates and unaffordable deposits pricing out first home buyers

High interest rates and unaffordable deposits are pricing many Europeans out of buying their first home, whilst expensive rents put further pressure on non-homeowners according to research by Adevinta.

As economic indicators – such as the European Central Bank interest rate cut in June – point to an improving Eurozone economy, greater affordability will be key to vitalising a stagnant housing market.

In most European markets surveyed, buying is still seen as the most sensible financial option compared to renting, as half (47%) believe this. This is with the notable exception of Germany where the rental market is more codified and popular than elsewhere in Europe, and where this figure falls to 35%.

But despite clear aspirations to own property, 64% of European non-homeowners claim that they don’t have enough money saved to put down a large enough deposit to buy a home. And as high cost of living dampens savings expectations, 58% don’t foresee being able to save up enough money to put down a deposit to buy within the next 3 years.

High interest rates pose another major barrier. With mortgage rates in the Eurozone having almost tripled over the past two years, 58% of non-homeowners feel that they can’t secure a mortgage due to high interest rates.

The majority of those Europeans who don’t own homes (62%) claim they only rent because they can’t afford to buy.

But renting is no ‘easy out’. As the cost of living crisis continues to take its toll on the consumer wallet, over half (54%) of non-homeowners claim that they are struggling to find a rental property within their budget, with this figure rising to 63% in Spain.

58% of Europeans believe they can’t live where they want to because rent or property prices are too high, suggesting housing costs are negatively impacting quality of life across the Eurozone.

Feelings of being out of pocket are particularly prevalent in Italy and Spain, where people report having to go over budget in order to secure accommodation. In Italy, citizens would prefer to pay a maximum of 22% of their monthly income for housing, however in practice they report dedicating 28% towards mortgages and 27% for rentals. In Spain, people don’t want to allocate more than 25% of their monthly income towards housing, but in reality commit 28% to mortgages and 30% for rentals.

Roman Campa, Head of Real Estate and Emerging Verticals at Adevinta and CEO of Adevinta Spain said “Every country has its own nuances but our data shows home seekers across Europe are being hindered by major affordability challenges. The good news is, the outlook is finally brightening. Should inflation keep falling, and interest rate cuts continue, we may see more home-seekers able to size up or get a foot on the ladder for the first time in key European markets like France, Spain, Italy, Germany and Benelux. This could mean both more opportunity, and more competition for home-seekers. 

“As ever, choosing the right moment to move is a significant decision. In a competitive environment for home-seekers, agents and marketplaces have a major role to play by providing people with as much information and choice as possible, to ease the search journey. Finding a place to call home should be an attainable and enjoyable experience, no matter the external economic context.”