Higher energy bills eating into their ability to afford a deposit
First-time buyers (FTBs) are struggling to save for a deposit as annual energy bills have nearly tripled compared to one month’s take-home pay from a year ago, mortgage platform Twenty7tec revealed.
According to the fintech firm, annual energy costs amount to 92.6% of one month’s FTB average net pay, compared to last year when these costs constituted 34.9% of a month’s take-home pay.
Regulator Ofgem announced last week that the energy price cap will increase by around 80% from the current £1,971 to £3,549 starting October 1 for small residences. Last year, energy bills were on average £1,339 for the same type of property.
Read more: How will the new energy price cap impact mortgage affordability?
Twenty7tec pointed out that FTBs bought houses that were worth on average £283,154 over the past month, securing a five-year fixed mortgage at 3.4%. They had an average combined salary of £56,693 last month, for both single and joint applications, which for a single person equates to a net pay of £3,448.
For a couple where one earns £30,000 and the other £26,683, this equates to a take-home pay of £3,833.10, around which the firm has based its calculations.
“A working housing market needs a functioning FTB market,” James Tucker, founder of Twenty7tec, said. “Together with the active buy-to-let market, it allows the rest of the property chain to keep moving smoothly. The energy price cap just announced will dramatically affect those looking to take their first step on the property ladder.
Tucker added that the energy cap rise will not only affect FTBs who try to save for their homebuying deposits, it will also hit those who have already purchased houses.
“Today, an average FTB will be buying a home worth £283,154, with a deposit of 23.75%,” he noted. “They will be going for a 28-year mortgage and, at the best rate available for them in the market, will be paying £1,004.03 per month for a repayment mortgage.
“So, the new energy cap increase is going to hit FTB households to the tune of £2,110 per year compared to this time last year, equivalent to two whole months’ mortgage payments.”
