Now is the worst time to be a first-time buyer since the 1980s
Now is the worst time for first-time buyers since at least the 1980s, analysis for i has shown.
New data that looks at both how big a deposit first-time buyers now need, combined with how much of their salary mortgage payments take up, has revealed there has never been a less affordable time to buy. This is according to research produced by leading estate agency Savills, which goes back to the late 1980s.
In recent years the amount you need as a deposit has grown as house prices have ballooned, however this financial hurdle has, up until recently, been offset by rock bottom mortgage rates. This meant that if you managed to save enough for the deposit, once you were a home owner your mortgage was relatively affordable.
However, lately, first-time buyers are hit both with having to get a large deposit – and, thanks to recent high inflation and base rate increases – high mortgage repayments. Both factors have been analysed as a proportion of salaries after tax has been paid.
This runs contrary to a statement last week made by NatWest chairman Howard Davies, who said in a radio interview it was not “that difficult” for people to get on to the housing ladder.
Lucian Cook, residential research director at Savills, said: “While historically first-time buyer affordability issues have been dominated by one or the other, those looking to get on the housing ladder now face a combination of steep monthly mortgage payments and high deposits relative to their earnings.”
Currently, a first-time buyer has to find an average £52,000 to put towards a deposit. And if they manage this they then have to spend 37.6 per cent typically of their take-home pay servicing their mortgage, according to data from Nationwide’s House Price Index.
Overall, the worst year for mortgage affordability was 1989 (when the base rate was just under 15 per cent pushing mortgage repayments sky high). Back then mortgage costs represented a whopping 47 per cent of people’s salary after tax, however the average deposit was half the proportion it is now. It represented just 65 per cent of annual first-time buyer’s income, compared with 125 per cent in 2023.
Meanwhile, in 2010, when the average deposit needed to buy was at its highest, mortgage rates were lower than they are now. The average first-time buyer deposit was 139 per cent of a first-time buyer’s income, but their average mortgage costs would make up 31.6 per cent of their pay.
Mr Cook, whose analysis was based on the Nationwide index and data from mortgage lenders published by the Office for National Statistics, said: “Those who took the plunge, partly did so given the turmoil in the rental markets and partly with an expectation that mortgage rates would moderate over the next two to five years, as thankfully we have started to see in recent months.”
Housing market analyst Neal Hudson added: “The cost of buying – mostly the deposit – has been a barrier for first-time buyers since the financial crisis, but higher rates now mean the cost of paying the mortgage is high too.”
With wages having risen by 7.3 per cent in the past year, it is arguably slightly easier to save for a deposit. However, rents have risen by 6.2 per cent in the private sector over the last 12 months, eroding much of the increase in savers’ take-home pay.
Meanwhile, in the last three years, mortgage rates have ballooned, with the average five-year fix increasing from 2.64 per cent in late 2021 to above 6 per cent throughout periods last year, though they have started to ease slightly since.
Mortgage rates tend to be lower for those with high deposits or equity in their home. Although rates are now available for five-year mortgages at 3.89 per cent, these are reserved for those with 40 per cent deposits or equity, which first-time buyers are unlikely to have.
With just a 10 per cent deposit, the best rate available on a two-year mortgage for first-time buyers is 4.94 per cent.
A £200,000 mortgage at this rate would cost £1,162 per month, whereas in mid-2021, when rates of 2.23 per cent were available, monthly costs would have been just £870 per month.
However brokers have suggested these rates will drop throughout the year, alongside the cheapest on the market, if inflation continues to fall as expected and the Bank of England’s interest rate does too.
This could ease the pressures facing first-time buyers.
David Hollingworth, associate director at L&C Mortgages, said: “While the need to get a deposit together has not hugely eased recently, first-time buyers are being impacted by higher mortgages rates. It’s very challenging, but the good news is that mortgages for those with lower deposits are falling. Some lenders can’t drop their rates for the very cheapest mortgages but are still doing so for the lower deposit rates.”