Raising a deposit for a mortgage is seen as the primary barrier to people buying their first home.
The challenge of raising a deposit for a first mortgage is shown in the chart below, which shows the size of deposits relative to income for building society lending.
Before the financial crisis, a first time buyer getting a mortgage had a deposit of about 60% of their nominal income if they were buying by themselves, or about a third of their joint income if they were buying with a partner.
However, since the crisis, changes in lending criteria, relatively weak income growth and changes in house prices, particularly in some regions, mean that the deposit required has risen to be a much greater proportion of income.
In the last two and a half years, the ratio has averaged almost 90% of a single first time buyer’s income, and half of joint buyers’ incomes.
Building society data from UK Finance Regulated Mortgage Survey
The BSA’s quarterly Property Tracker Survey shows that people have seen raising a deposit as the biggest barrier to buying property in the UK for some time. Since 2010, around 60% of people have consistently identified this is a barrier. This proportion is even higher, nearer 70%, among first-time buyers who have not benefited from an increase in the value of existing property.
The figures are even starker at a regional level, where the growth of house prices in some regions is evident in the deposits required by first time buyers, as shown in the chart below.
London stands out as having seen a persistent increase in the ratio of first-time buyers’ deposits to income, with joint borrowers putting down deposits equivalent to about 80% of their combined income in recent years, compared to below 40% before the crisis. In Southern regions, joint first-time buyers have deposits of around 60% of their incomes. In contrast, the house price bubble in Northern Ireland leading up to 2009 can clearly be seen in the data.
Building society data from UK Finance Regulated Mortgage Survey, selected regions
Help with a deposit
The increased challenges in raising a deposit have led to interventions from Government such as the Help to Buy schemes, which aim to support buyers struggling to raise the necessary down-payment. The so-called Bank of Mum and Dad has also taken a more important role, either directly via gifts or loans, or via intergenerational lending products, offered by many building societies, such as guarantor mortgages or loans that make use of parent’s savings with the lender.
Next week the BSA will be launching research looking at how the support to first-time buyers might develop over the years ahead, and how the aspirations of younger people for a home that they own can be realised. If you’d like to receive a copy of the report on the 13 November, contact Amy Harland at email@example.com.