Data published in Nationwide’s Affordability Special Report reveals that raising enough money for the deposit is the biggest barrier to first-time buyers while mortgage repayments remain less of a problem.
With house prices at historic highs while average earnings stay relatively stagnant, raising a deposit has become the most significant barrier to first-time buyers trying to get on the property ladder. It’s not a situation the UK is familiar with as, in the past, earnings and house prices have managed to stay relatively conjoined.
Today, however, a 20% up=front deposit (commonly required to secure a mortgage) is the equivalent of 104% of annual income, up from 87% a decade ago.
In other words, which must be handed over in one lump sum. a deposit costs more than a year’s wages
Nationwide Senior Economist, Andrew Harvey, said: “Over the past few years, earnings growth has broadly kept pace with house price growth, which means that the ratio of house prices to average earnings (HPER) has remained relatively stable, albeit at a high level. At the end of 2020, the UK First Time Buyer (FTB) house price to earnings ratio stood at 5.2, close to 2007’s record high of 5.4, and well above the long-run average of 3.7.”
While prices are far out-growing earnings and making deposits unaffordable, mortgages are being granted at significantly low rates. When measured as a share of take-home earnings, mortgages are close to the historic average.
Also highlighted in the report is the ever-widening gap between the most and least affordable regions of the UK and the effect that is having on homeownership. For decades, London has been the least affordable area of the nation. To save the average 20% deposit takes the average person more than 15 years. In the nation’s most affordable regions, however, including Scotland and ‘The North’, it takes closer to just 5 years.
Managing Director of Barrows and Forrester, James Forrester, commented on the findings:
“Although homebuyers are currently enjoying a sustained period of increased affordability where the cost of borrowing is concerned, the sums they are required to borrow have continued to climb due to a consistent increase in house prices, as have deposit requirements.
As a result, we’ve seen the average age of the first-time buyer creep ever higher in recent years and while we remain a nation of aspirational homeowners, it’s taking us longer and longer to realise this dream due to the initial financial hurdle of a mortgage deposit. ”
Founder and CEO of GetAgent.co.uk, Colby Short, commented:
“Although we’ve seen some healthy growth in the average level of earnings in recent years, this growth has failed to keep pace with the UK property market and the cost of climbing the ladder.
Because of this, mortgage deposit requirements pose the largest obstacle for many when looking to buy. When you couple this with borrowing restrictions based on income multiples, it further limits the options open to many homebuyers. This is largely why many won’t get their first foot on the ladder unless it’s with the help of a partner or friend. It’s also why many more have turned to the bank of mum and dad in recent years.
Of course, there is a large regional difference where mortgage deposits are concerned. However, it’s important to note that house price affordability is relative to the earnings available in each area and so a lower house price doesn’t necessarily mean it’s easier for buyers in these regions.”
Managing Director of Benham and Reeves, Marc von Grundherr, commented:
“While London is home to the highest average earnings in the UK, the high cost of climbing the ladder in the capital means homebuyers continue to face the toughest task of all UK regions. Both where an initial deposit is concerned and the ongoing commitment of mortgage payments.
For those with the grit and determination to climb the London property ladder, the reward can be well worth it. London remains one of the most desirable cities in the world from a bricks and mortar point of view and we’ve seen the capital weather multiple storms over the years, not only living to tell the tale but returning to normality at a far quicker pace than the rest of the UK.”