The typical first-time buyer must now put down an average deposit of £45,569, representing a 54% jump in comparison to first-time buyer deposits ten years ago. This includes a 40% increase in the last five years alone.
Options currently available to first-time buyers
These large increases in deposit sizes are primarily down to the surging housing market in the UK. Ten years ago, the average first-time buyer property cost only £138,973, fast-forward to today and that average property is now worth £227,846.
During this time the requirements to qualify for a mortgage have also increased, from 17% of the home’s value to 20%.
The overall effect is that new first-time buyers have to save an average of £45,569 compared to the £23,625 that was required ten years ago.
The chief executive of Stipendium, a finance management platform, Christina Melling comments on the rise:
“Record house price growth means that the initial requirement of a mortgage deposit has climbed substantially over the last decade and the vast majority of this increase has been seen in the last five years alone.
While this increase will have been felt by homebuyers at all levels of the market, it’s been particularly hard on first-time buyers who are just starting out on their journey to homeownership and who won’t have the financial backing of a previous property in order to cover their mortgage deposit costs.”
She further questions exactly when these price rises will end, with the market continually trending up and surpassing prior peaks after every notable realignment, it severely reduces the chances for many aspiring homeowners.
This makes the UK property market a tough place for buyers to try and make their first steps on the property ladder. However, there are certain schemes introduced by the government to try and help first-time buyers.
What has caused this rise?
As just mentioned, there are an assortment of schemes to help first-time buyers get on to the property ladder.
One of the most well-known schemes is the Help to Buy equity loan, this enables first-time buyers to purchase new build properties while only paying a 5% deposit, the government pays the remaining 15% with an equity loan that is interest free for the five years.
Another scheme to help buyers with a smaller deposit is the 95% mortgage guarantee scheme, this can be used for old properties as well as new builds. However, as the deposit is only 5%, these mortgages tend to come with higher interest rates, and it is harder to re-mortgage until you own more of your home.
Other schemes for soon-to-be buyers include shared ownership, where the buyer purchases a portion of the property and pay rent on portion they don’t own.
There is also a newly started and relatively unknown scheme known as First Homes, where first-time buyers, locals, and key workers can buy newly built homes at a 30% discount. These homes have a maximum upper value of £250,000 (or £420,000 in London) and the buyers must already live in or have a connection to the area. If the owner decides to sell, the 30% discount must be passed on to the next buyer, who must also fit the eligibility criteria.
For those who are still saving for their first deposit, there is the Lifetime ISA. People can save up to £4,000 a year and the government will add a 25% bonus (up to £1,000) annually. This money can only be used to purchase a first home, otherwise, as its name suggests, it has to be saved until retirement.