We are facing into a very difficult period for those looking to step onto the property ladder. In the next five years, it is estimated up to 426,000 first-time buyers in England will be priced out of the UK housing market. It sounds unbelievable, but that’s almost half a million fewer people able to invest in a home of their own.
With the Bank of England base rate increasing 14 times since the end of 2021, there is now an even more potent mix of high deposits and high repayments required to buy a home of one’s own, making 2024 a crunch year for first-time buyers. This is a time when they need more support than ever before from mortgage brokers and lenders to guide them on their journey towards homeownership.
So, this is where we, as lenders, can do everything in our power to support those who are starting out on their journey to homeownership.
Last month, Leeds Building Society commissioned a new report in partnership with WPI Strategy, looking at the challenges of buying a first home between 1982 and 2022, and uncovers the multiple barriers facing first-time buyers now, and in the years to come.
For example, in 2022 house prices paid by first-time buyers were 16 times higher than in 1982, while gross earnings for this group were only seven times higher than 40 years earlier. That means the house price to earnings ratio has more than doubled in the past four decades, from two times earnings to almost five times.
There’s also an impact on which ‘would-be’ homeowners are able to get onto the ladder, with buyers typically needing higher incomes and higher deposits than in years gone by. The average deposit in 2022 was a staggering £68,700, which is 115% of an average first-time buyer’s salary. This amount would take the average private renter 12 years to save up.
In 1982, previous generations were joining the property ladder with an average deposit of £2,100 which was 25.5% of the average first-time buyer salary. Saving up to put down a deposit took just 2.5 years for a typical private renter.
But with rising rents and interest rates affecting the cost of living, saving for a deposit now is harder than ever. This has led to a growing gap between people with the ability, or family help, to build up a deposit and those who cannot. If left unaddressed, the number of aspiring homeowners priced out of the market could be enough to fill a city bigger than Coventry.
This underlines the need for long-term solutions. As a mortgage community, we must recognize the challenges this group of buyers is facing and work together to take action now to protect homeownership for future generations.
In the report published last month, we outlined our key asks of the government which includes building more homes of all types – with a major acceleration of current efforts and policy changes, restoring mandatory housing targets and the introduction of targets for affordable housing in local authorities.
We outlined the need to increase the affordable routes to home ownership. The Renters’ Reform Bill could provide much needed protection for those saving for a deposit. Paired with support for a well-managed and regulated build-to-rent sector, and increased bridges to ownership such as shared ownership, the government can act now to support this generation of lost first-time buyers.
Our third and final ask was to look at savings. First-time buyers need support to save for their deposit. Whether that be reform to the Lifetime ISA scheme to reflect house price increases, or new measures to allow people to build and improve credit scores by including rent payments.
These factors are all contributing to a lost generation of first-time buyers. We need to work together with the government to develop a long-term plan before things get even worse.
As a mortgage community, we can work together to preserve the future of homeownership for the next generation of first-time buyers.
Martese Carton is director of mortgage distribution at Leeds Building Society
