First-time buyer deposits soar more than 50% in a decade
The average person taking their first step on to the property ladder now puts down more than £45,000 as a deposit.
Key takeaways
- The average deposit put down by a first-time buyer has soared by 54% during the past decade
- The typical person taking their first step on to the property ladder now puts down an average of £45,569, compared with £23,625 10 years ago
- The size of the deposit put down has also increased from 17% to 20% of the home’s value
The average deposit put down by a first-time buyer has soared by more than 50% during the past decade.
The typical person taking their first step on to the property ladder now puts down an average of £45,569, according to professional services platform Stipendium.
The sum represents a 54% jump compared with first-time buyer deposits 10 years ago, and a 40% increase in the past five years alone.
Not only have house prices risen during the period, but the typical deposit first-time buyers need to have saved in order to secure a mortgage has also increased from 17% of their home’s value to 20%.
While the combination of soaring house prices and larger deposits makes it harder for first-time buyers to get on to the property ladder, the government has launched a number of schemes during the past 10 years to help people purchase their first home.
Why is this happening?
The huge jump in the size of deposits first-time buyers are putting down has been largely driven by increases to house prices.
The research found that while 10 years ago the typical person put down a 17% deposit, the average first-time buyer property cost just £138,973, giving a deposit of £23,625, or £29,684 in today’s money after being adjusted for inflation.
But fast-forward 10 years, and the typical first-time buyer property now costs £227,846.
At the same time, the proportion of a home’s value that first-time buyers need to put down in order to qualify for a mortgage has increased from 17% to 20%.
As a result, first-time buyers now need to save an average of £45,569 – a massive £21,944 more than 10 years ago.
Who does it affect?
The strong house price growth seen during the past decade makes it particularly challenging for first-time buyers to get on to the property ladder in areas where house prices are higher.
This is particularly the case for first-time buyers in London, where the average property costs £508,500 according to latest House Price Index, as well as other towns and cities in the South East, where property prices are generally higher.
But there are still pockets of affordability for first-time buyers, particularly in northern cities, such as Glasgow, Newcastle, Aberdeen and Sheffield.
The average home in Glasgow costs just £135,200, meaning a first time buyer putting down a 20% deposit would need to save £27,040 – broadly in line with the typical deposit put down 10 years ago.
What’s the background?
The good news for first-time buyers is that the government has introduced a number of schemes to help them get on to the property ladder.
People saving for a deposit can benefit from the Lifetime ISA, under which they can save £4,000 a year to which the government adds a 25% bonus, up to a maximum of £1,000 annually.
The money must be used to either purchase a first home or for retirement.
To help buyers purchase a property with a smaller deposit, there is the 95% mortgage guarantee scheme.
The Help to Buy equity loan scheme also enables first-time buyers to purchase a new-build property with a 5% deposit, which the government tops up with a 20% equity loan that's interest-free for five years.
Other schemes include First Homes, under which first-time buyers, key workers and local people can purchase a home at a 30% discount to its market price, and Shared Ownership, which enables people to buy a share in a property and pay rent on the portion they don’t own.
First-time buyers are also exempt from stamp duty on the first £300,000 of a home purchase on properties costing up to £500,000.
Expensive ground rents to be banned for new buyers
From 30 June, the government is banning expensive ground rents, meaning leaseholders will no longer have to pay them when purchasing a home on a long lease.
The government is banning the charge of expensive ground rents on leasehold properties for new buyers in England and Wales.
Unlike a freehold property, with a leasehold one, homeowners do not own the property outright. Instead they have the right to live in it for a set length of time, typically between 99 and 125 years.
The land on which the property sits continues to be owned by the freeholder, and the homeowner has to pay annual rent on it – known as ground rent.
But from 30 June, landlords will no longer be allowed to charge ground rent to people purchasing a home on a long lease.
The government said no clear service was provided for the charge, while the regular increases in ground rent imposed on homeowners placed a significant financial burden on them.
Leasehold Minister Lord Stephen Greenhalgh said: “This is an important milestone in our work to fix the leasehold system and to level up home ownership.”
Why is this happening?
In the past, leasehold properties tended to be restricted to flats. But there has been a growing trend in recent years for developers to sell houses on a leasehold basis.
Government research found that people living in leasehold homes were being treated as a steady source of income by the owners of the freehold, with some ground rents doubling every 10 to 15 years.
A study by trade body NAEA Propertymark found that homeowners living in leasehold properties were collectively paying £447 million in ground rent every year.
The average person paid £319 on the rent annually, with a third of homeowners reporting that they would no longer be able to afford to live in their property if it increased further.
Who does it affect?
The ban only applies to new buyers purchasing a leasehold property in England and Wales, and existing homeowners who are renewing their lease from 30 June.
But in preparation for the changes, many landlords have already reduced the ground rent they charge to zero for homeowners starting a new lease.
If you are set to sign a new lease on a home in the next two months, you should speak to your landlord to ensure the ground rent they are charging reflects the changes.
Ground rents for existing leaseholder homeowners will be tackled through future measures, under which homeowners will be given the right to extend their leases to 990 years at zero ground rent.
The government will also launch an online calculator to help homeowners find out how much it would cost them to buy their freehold or extend their lease.
An estimated 4.5 million homeowners in the UK have a leasehold property.
What’s the background?
The move is the first part of a package of reforms to make homeownership cheaper, fairer and more secure.
Thousands of existing leaseholder homeowners have already seen a reduction in their ground rents after the Competition Market Authority secured commitments from major housebuilders to stop doubling ground rent charges every year.
Instead, their ground rent will be reduced to the level it was at when they first purchased their property.
Key takeaways
- The government is banning expensive ground rents on leasehold properties for new buyers in England and Wales
- From 30 June, landlords will no longer be allowed to charge the rents to people purchasing a home on a long lease
- Ground rents for existing leaseholder homeowners will be tackled through future measures