Money News

First time buyers need bigger deposits

By Martin Fagan - news@consumerchoices.co.uk

Bigger deposits and falling incomes are preventing first-time buyers getting on the ladder - but should we be bothered? asks CML.

The biggest challenge facing most first-time buyers is the size of deposit they must now pay, relative both to income and property value, according to the Council of Mortgage Lenders (CML).

In January 2007, first time buyers needed an average deposit of £12,556, which represented 41% of their annual income. In January 2011, the average deposit required had more than doubled to £26,582 which was 87% of their annual income, said the CML.

According to data from the Council, this latest figure is a reduction from January 2010, when the average deposit was £31,579 - representing 92% of a first-time buyer’s annual income.

The CML also said that eight out of 10 first-time buyers under 30 only get onto the property ladder because they receive substantial financial help from their parents or wider family.

“We do not expect there to be a significant increase in first-time buyer activity in 2011 or 2012,” said a CML spokesman.

“The reality for first-time buyers is that, although there is widespread sympathy for their plight, they are only one of a number of different types of consumer who are experiencing difficulties in challenging housing and mortgage market conditions.”

Adding to the gloom for first-time buyers is a report from the Joseph Rowntree Foundation which forecasts fewer young couples will be able to afford their first home together in the future and that, by 2026, only one in four couples will own property.

But there is a brighter outlook provided by new research from Santander, which found first-time buyers paid an average deposit of 17% of the overall property price - and took 29 months to save for it - even though mortgage deals requiring only a 10% deposit were available.

Santander has just launched a 5.29% two-year fixed mortgage at a 90% loan-to-value (LTV). A £495 upfront fee is also applied and the deal is available exclusivly to Santander customers who have a First Home Saver account.

“Despite the availability of 5% deposit mortgages throughout most of the Noughties, our research has found first-time buyers opted to put down an average of 17%,” said Phil Cliff, director of mortgages at Santander.

“That’s over two per cent more than the average deposit currently paid now, and the majority of our first-time buyers have achieved this using the ‘traditional' route of savings.”