John Wriglesworth looks at recent research revealing how long it’s taking first-time buyers to save for their deposits
Housing market experts have – much to the delight of those struggling to get on the property ladder – been talking about a cooling housing market for several months now.
However, first-time buyers received some bad news this week when a survey published by National Savings and Investments (NS&I) revealed that it now takes four years and nine months to save up for the standard minimum deposit on a first home.
This represents an increase of three months since quarter three 2004 and an increase of nine months compared to a year ago.
Typically first-time buyers save 5 per cent of their quarterly earnings until they can afford to put down a 5 per cent deposit on their first home. However, the time taken to save the deposit is taking longer than ever. To fully understand why this situation has occurred, average first-time buyer’s incomes and house prices need to be looked at.
Static development
The latest Saving Survey from NS&I revealed that the combined average income for first-time buyers is £31,400. This shows an almost static development of income figures compared to a year ago when the average income figure was £31,270 – a mere increase of 0.5 per cent.
With little growth in income figures, we need to look to the main culprit in this equation, rocketing house prices. According to the Office of the Deputy Prime Minister (ODPM) the average first-time buyer home across the UK comes with a hefty price tag of £147,127 – an increase of 16.5 per cent compared to a year ago.
In 2004 first-time buyers would have had to pay £126,341 for their first house, a difference of more than £20,000 – just under two-thirds of their combined average annual income.
As a result of this drastic increase in house prices, the deposit first-time buyers have to put down on their first home has seen a sharp rise too. Presently the average deposit required for a first home stands at £7,356 compared to £6,317 a year ago.
With house prices increasing by far more than the average first-time buyer income, it becomes increasingly difficult for first-time buyers to save up for the deposit required.
Regional level
Looking at these developments on a regional level some areas show an even more worrying trend than the national picture. While it takes first-time buyers in East Anglia the longest to save for a deposit (five years), the most dramatic changes have occurred in Wales and in the North.
In Wales it now takes on average four years and six months to save for a deposit, one and a half years longer than a year ago. The North West as well as the North East have seen similar increases over the last year – in both regions the average time needed to save up for a deposit has risen by one year and three months from three years to four years and three months.
However, first-time buyers in some regions are luckier than others – the time taken to save a deposit in London, the South East and the South West has remained static over the last six months and has seen an increase of a mere three months compared to a year ago.
This is due to the fact that house prices in these regions have seen the lowest level of inflation across the UK. These regions have the highest earnings in the UK.
Scotland is the region in the UK where it takes the shortest time to save for a first home – three years and nine months, compared to four years and nine months for the rest of the UK.
However the time it takes to save up for a deposit has also seen an increase of nine months over the last year – in line with the national average. Overall, Scotland enjoys the lowest house price to income ratio, implying that houses in Scotland are still relatively affordable for first-time buyers.
A glimmer of hope
But despite all the bad news, there is a glimmer of hope on the horizon for first-time buyers in UK. According to the Council of Mortgage Lenders, savings rates have risen over the last year from 3.7 per cent gross to 4.31 per cent gross presently.
This is a welcome relief for first-time buyers desperately trying to get a foot on the housing ladder. Overall, it can be seen that while the time it takes to save up for a deposit has increased in most of the UK there are signs of stabilisation and slowdown.
If this situation spreads across the UK and savings rates continue to rise, the burden for first-time buyers might eventually begin to lift.
John Wriglesworth is managing director of The Wriglesworth consultancy
