Home ownership aspirations further out of reach

Home ownership aspirations for first-time buyers has fallen out of reach, according to new research. The average deposit for those buying their first home has risen to £47,059, which represents around a fifth of the average house price in the UK of £241,025. In fact, according to the analysis from Halifax, a decade ago, first-time buyers had a much smaller deposit of £37,761, so today’s average has grown by 25%.

The latest analysis from Moneyfacts.co.uk reveals the tightening in the availability of mortgage products for borrowers with a smaller deposit. More than 1,000 deals have vanished over the past six months – which comprises of those at 90%, 95% and 100% loan-to-value (LTV) for both fixed and variable options – and there are now less than 100 deals as a result.

  • There has been a fall of 1,108 deals available to borrowers at 90% LTV and above since the start of March.
  • The average rate on a two-year fixed mortgage at 90% LTV has risen from 2.57% to 3.54% over the past six months.
  • If borrowers were starting their deposit from scratch today and hope to accumulate £47,000 over the next five years, they would need to save around £780 per month.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “First-time buyers may feel deflated to find a contraction in the market for higher LTV mortgage deals and to see property prices rise. The average age for a first-time buyer is now 31, a year older than that of 10 years ago, and the average deposit has increased by a quarter (25%) over the same period. Without the help from the Bank of Mum and Dad, it would not be surprising to see some prospective buyers to put their plans on hold until more mortgage deals enter the market that they can comfortably afford.

“Those first-time buyers who are paying rent may also be struggling to put aside a healthy portion of their disposable income towards a deposit for a home. Indeed, according to HomeLet’s rental index, the average UK rent for new tenancies is £951 per month. If borrowers are expected to amass a deposit of £47,000 over the next five years and have no savings, then they would need to put aside around £780 per month starting now.

“There are ways to boost a savings deposit, and consumers could get a max boost of up to £1,000 a year from the Government with a Lifetime ISA – so this extra cash can be a vital injection. The low rates seen across the savings landscape are disheartening, but property prices can go up as well as down, and with mortgage products tightening, borrowers may only be able to stretch their savings so far.

“As we have seen over the past six months, lenders have pulled many higher LTV deals, with some institutions leaving these sectors entirely, largely because of the high level of demand they are experiencing due to the Coronavirus pandemic. Until matters settle, there is no clear sign of when these deals will return to the market, and with 1,108 fewer deals available than six months ago at 90% LTV and above, it is clear to see how much choice has reduced for potential first-time buyers. There are still some deals to choose from, and recently Virgin Money entered the market with 90% LTV deals, over a seven and 10-year fixed term.

“If borrowers are adamant to get onto the property ladder right now, they could consider a guarantor or family assist mortgage. However, these may not be suitable for everyone, and not all borrowers will have family to help them get a step on the property ladder, so for many, it could be years until they amass a large enough deposit.”