Deposit saving and stretched income multiples are holding back first-time buyers in the south while northern cities remain within reach
First-time buyer affordability deteriorated in the second quarter of 2026 as swap rate increases linked to the Middle East conflict pushed up mortgage pricing, but the squeeze has landed far harder on southern cities than on the north, according to the chief executive of a fast-growing savings and mortgage platform.
Tembo's First-Time Buyer Index, a quarterly measure of how accessible the market is for new buyers, showed its attractiveness score falling from 637 in Q1 to 598 in Q2, moving from the "high" to the "moderate" category. House prices rose in 14 of the 21 cities analysed, while deposits and loan-to-income ratios increased in 70% of them.
Richard Dana (pictured top), co-founder and chief executive of Tembo, told Mortgage Introducer the conflict was the main reason the quarter fell short. Escalating hostilities in Iran drove swap rates sharply higher from March, prompting lenders to reprice fixed deals at speed.
"It led to swap rate increases, which led to mortgage pricing increases," he said. "Obviously, that makes it more expensive, but the real killer is it really impacts affordability as well, and particularly on the monthly repayments."
Where are first-time buyers still finding value?
Dana said the headline picture masked a sharp regional divide. Tembo's first index, covering Q1, named Glasgow as the best city for first-time buyers. He said homes there typically cost three-and-a-half to four times income.
"What we've found in many of the northern regions is affordability is actually good, so there is a good story there where people can buy," he said. "The issue is in the southern cities, particularly like London, Bristol, Brighton, where affordability remains really tight, like six, seven, eight times income."
He added that falling prices in parts of the south were making buyers more hesitant to commit.
"If you're about to take this huge leap, it's not that appealing if you think the property prices are going to go down as well," he said.
Is it still better to buy than rent?
Each quarter, Tembo compares the cost of buying with the cost of renting over one and five years. The buying side accounts for the purchase price, deposit, monthly interest and any change in property value. The renting side uses average rents plus the return a renter could earn by investing the money that would otherwise have gone into a deposit.
"We've got this calculation where we look at the question which we get asked the whole time, which is, is it better to rent or to buy?" Dana said. "There's a lot of these influencers trying to push don't buy, don't buy, invest in the stocks."
The Q2 results showed that buyers in northern cities would be £8,139 worse off on average by delaying a purchase for a year. Those in southern cities would be £2,757 better off in the short term by waiting. Dana said several southern cities had tipped into negative territory on the one-year measure, but buying still made financial sense over the longer term across most of the UK.
What is stopping first-time buyers saving a deposit?
Nationwide's January 2026 affordability report estimated that a 10% deposit on a typical UK first-time buyer home is around £23,000. Someone saving 10% of average take-home pay would need nearly six years to reach that, rising to around nine years in London. Separate analysis from reallymoving, factoring in upfront costs such as conveyancing and surveys, found that first-time buyers in England buying alone need more than nine years to save, and around 13 years in London.
Dana said the first barrier is saving while renting.
"I think one of the issues that you have with the cost of living, where there hasn't been that much income inflation and really high rental costs, is actually saving for a deposit whilst paying rent. It's really hard."
He said the average deposit among Tembo's first-time buyer customers is around 15%, because a larger deposit unlocks more lender options and better rates. The second barrier is the gap between house prices and incomes.
"Particularly in the south, people on incomes in great jobs, teachers, nurses, doctors, they're struggling to get to the affordability to get to a property that they can actually afford," he said. "But we’re seeing with property prices coming down a bit in the south, and incomes increasing, that is closing, but it's still those two things. Saving for a deposit and then the affordability are the two biggest issues."
How does the HomeSaver Cash ISA fit in?
Tembo launched its HomeSaver cash ISA earlier this month, paying 5.5% annual equivalent rate variable. The rate combines a 2.8% variable base rate with a 2.7% fixed conditional bonus. The bonus is paid after 12 months if the saver completes a mortgage through Tembo within three years of opening the account.
Dana said the Lifetime ISA remains the strongest option for first-time buyers purchasing below £450,000 because of its government bonus of up to £1,000 a year. The HomeSaver is aimed at savers who have already filled that allowance. He put the next-best cash ISA rate on the market at around 4.6%.
"We're basically giving first-time buyers who are struggling to save this extra bit of money onto their savings, which is a great incentive for them," he said.
Between 60% and 70% of Tembo's customers have previously been turned down by a broker or lender, Dana said, often because they are self-employed, have adverse credit or are foreign nationals. The company aims to increase the number of UK first-time buyers by 20%, equal to roughly 70,000 to 80,000 mortgages, within the next two years.
He credited Tembo’s growth to taking on borrowers that high-volume digital brokers tend to pass over when a case is not straightforward. "It's all about the niche, and it's all about the criteria to help people get on the property ladder."
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
