The average first-time buyer deposit was almost lb4,000 lower in the final financial year, according to a brand new government housing survey. Would you have saved enough deposit to purchase a house without realising it?
The annual English Housing Survey revealed the normal deposit paid by a first-time buyer in 2022/18 was lb44,635, down from lb48,591 the prior year. This means it’s fallen by lb3,956, or 8.14%.
Which? requires a closer look at how first-time buyers have achieved their house ownership dreams while offering suggestions about how you can perform the same.
Are things improving for first-time buyers?
The English Housing Survey reports on two types of averages.
The first is the mean, that is calculated with the addition of together all of the deposits paid and dividing that by the number of first-time buyer households.
The second is the median, which involves listing every individual deposit paid from lowest to highest and taking the number that falls exactly halfway on the list.
The mean first-time buyer deposit has fallen previously 3 years, peaking at lb48,831 in 2022/16 before falling to lb44,635 in 2022/18.
However, the figures tell a different story when looking at the median first-time buyer deposit, which rose slightly from lb22,000 in 2022/16 to lb25,000 in 2022/17, residing in 2022/18.
So, why are the 2 figures so different? The bottom line is, the mean is affected by outliers in the data – in this case large deposits for additional expensive homes – and this is why many argue that the median may be the more useful figure to look at.
However, all averages ought to be taken having a pinch of salt and you ought to investigate what’s happening in your area to find out what you’ll actually have to pay for.
First-time buyers in England (excluding London) were also capable of getting onto the property ladder slightly sooner in 2022/18, at the age of 32.6, compared to 33.One in 2022/17, based on the report.
However, buyers working in london needed to wait slightly longer, typically taking their first step onto the ladder aged 34.5 in 2022/18 – after last year, when the average age was 34.1.
How much deposit do you need to buy a home?
The English Housing Survey found that, of the 785,000 first-time buyers in England, a lot more than two-thirds (67.5%) paid a deposit of less than 20% from the cost of their property.
Just 11,000 first-time buyers (1.5%) got a 100% mortgage, while 149,000 (20.6%) had a deposit of 1-9% and 330,000 (45.5%) were built with a deposit of 10-19%. A lucky 6.8% of first-time buyers, meanwhile, bought outright with no mortgage whatsoever.
In general, first-time buyers will need a first deposit of at least 5% of the property's value to obtain a mortgage. A home loan lender will then lend you the remaining 95% of the price.
The total deposit you need to strive for depends upon the property's value.
For example, a 5% deposit on the lb200,000 home is lb10,000 and you can apply for a mortgage to create up lb190,000 from the sale price.
But a 5% deposit on a lb150,000 house is lb7,500 – so you won't have to save as long to obtain the ball rolling.
That said, the greater it can save you the better. Generally, the higher the proportion of a property price place up yourself, the better the mortgage rate you’ll be able to get.
If you’re can not save a first deposit, though, there's a growing trend for lenders to offer 'no-deposit' 100% mortgages that are backed by a guarantor, that could be considered a parent or grandparent.
There’s also a wide selection of schemes to assist first-time buyers with small deposits or those buying in expensive areas including Help to Buy and shared ownership.
How do first-timers buy their homes?
More than half (56%) of first-time buyers bought their house jointly with a partner or spouse while 43% bought alone, based on the survey.
Almost all first-time buyers in England (99%) had a repayment mortgage.
Nearly half (46%) had a mortgage of 3 decades or more; 50% were built with a deal lasting 20-29 years, while a small proportion (3%) were built with a 1-19 year mortgage.
Borrowing for longer can help enhance your mortgage chances. By spreading repayments beyond the traditional 25-year period you can lower your repayments which can help you meet strict affordability requirements.
However, enhancing the term of the mortgage means you will pay more interest over the course of the loan and could mean you wind up borrowing into retirement.