Poor mortgage availability for first time buyers hit the press for negative reasons in 2020, but high house prices are still the largest barrier for first time buyers to get onto the property ladder. Recently announced figures have shown that average earnings have not kept pace with house price growth, making saving for a deposit harder as property prices keep climbing.
Nationwide, the UK’s largest building society, have confirmed that the average first-time buyer needs to save more than a whole year’s salary for a deposit on a new home. In 2020 when mortgage lenders started to withdraw low deposit options for all new applicants, potential borrowers were being asked to stump up a 20% deposit, inevitably leaving first time buyers hardest hit. Saving for a 20% deposit is the same as 104% of a first-timer buyer’s salary on average, 10 years ago this figure was only 87%, showing the rate at which house price growth is outstripping earnings growth.
Although 15% deposit options returned fairly quickly, lenders are only slowly starting to offer 10% deposit mortgages again, and there is still no sign of 5% deposit options. In fact, the only 5% deposit options available today are those using Government backed incentives like the Help to Buy scheme; where the Government lends 20% interest free for 5 years, subject to the buyer putting down 5% - but only when buying a newly built home where the builder makes this option available.
The impact of the lack of mortgage options for most first-time buyers has meant an inevitable increase in the amount of deposit that many first-time buyers would deem to be ideal. Against the backdrop of a frantic property market fuelled by the temporary stamp duty break, alongside lenders simply not accepting small deposits, the size of the average first-time buyer deposit increased by 23% in the last year.
The UK’s largest mortgage lender, Halifax, showed figures on each region, with the North of England showing the largest percentage change in required deposit. When the regional variations are examined on the amount of money this equates to, buyers in London are hardest hit, with a staggering year on year increase of £20,211 extra funds needed this year compared with last year.
|
Region |
2019 (£s) |
2020 (£s) |
Average change % |
Average change £s |
|
North |
23,788 |
29,563 |
24% |
5,775 |
|
Yorkshire & Humberside |
28,008 |
33,313 |
19% |
5,305 |
|
North West |
29,519 |
34,347 |
16% |
4,829 |
|
East Midlands |
33,268 |
39,052 |
17% |
5,783 |
|
West Midlands |
34,008 |
42,062 |
24% |
8,054 |
|
East Anglia |
43,474 |
51,126 |
18% |
7,652 |
|
Wales |
26,029 |
32,663 |
25% |
6,634 |
|
South West |
42,504 |
51,397 |
21% |
8,893 |
|
South East |
54,564 |
64,910 |
19% |
10,256 |
|
Greater London |
110,145 |
130,357 |
18% |
20,211 |
|
Northern Ireland |
25,327 |
29,523 |
17% |
4,196 |
|
Scotland |
30,101 |
35,745 |
19% |
5,644 |
|
UK |
46,449 |
57,278 |
23% |
10,829 |
Source: Halifax
When these figures are examined, the inevitable question is ‘Are first time buyers being forced out of home ownership in the UK?’. The answer is surprisingly optimistic when looking at the Halifax research. Although the n umber of first-time buyers entering the property market in the first half of 2020 was down by 13%, this was largely due to the entire property market being shut down during the Spring, when the Government enforced the first national lockdown due to the pandemic. There was an inevitable bounce in these numbers in the second half of 2020, when subsequent lockdowns did not result in the closure of the housing market. Overall, the number of first-time buyers entering the UK property market last year was only 2% down on the year before, which gives cause for optimism for first time buyers.
“We welcome the return of lenders to first-time buyer-friendly mortgage products, as those who do not have family to lean on for help have been left in limbo,” commented Sat Singh, CEO of Smartr Finance.
“However, the ability to put down a 10% deposit does not mean that the lender will accept the application. Underwriting and credit scoring have got much stricter pretty much across the board with every lender. There are cohorts of first-time buyer who are still penalised based on lenders’ conservative and punitive risk profiling. For example, those with variable elements to their income, like employed people who earn bonuses and commission, and all self-employed applicants; are being subjected to much more scrutiny.”
In the coming weeks regulators of UK lenders will release information about mortgage acceptance rates for 2020, figures which will make for interesting reading for those looking to get agreed for a mortgage in 2021, especially those who do not have a track record of having managed a mortgage before to reassure lenders that they are a good risk.
First-time buyers who are looking to buy their first home should always seek mortgage advice early to establish their borrowing power, and also understand any conditions that are attached to any agreement in principle. Smartr Finance have access to most UK mortgage lenders, and thousands of first-time buyer friendly products. They work with their clients to quickly establish whether the conditions applied are ones that fill result in a successful mortgage application, and then manage the application process quickly and efficiently.
Smartr Finance can be contacted here for an obligation-free review of your circumstances to confirm which mortgage options are available.