Aspiring homeowners are substantially underestimating the size of the deposit they need to get on the housing ladder, while women save half as much as men, according to research underlining the barriers facing first-time buyers. In a survey of about 5,000 UK adults aged between 18 and 40 — treated as a sample of potential first-time buyers — Santander Mortgages found two-fifths (42 per cent) of respondents had saved nothing towards their first home. The average pot saved towards a deposit among other respondents was £8,300, with men saving an average £11,600 and women £5,620.
When asked what they were targeting as a total saving for a deposit, participants’ responses averaged £24,816 — significantly below the average deposit of £44,000 put down by first-time buyers in figures published in March by the Office for National Statistics. Santander said the aim of home ownership was moving out of reach even for middle earners.
“With the majority of mortgage borrowing limited to 4.5 times gross salary, the deposit amount buyers in each region say they are looking to save would price individuals, or households relying on a single middle income, out of every region in the UK,” the lender said.
The proportion of middle earners — those bringing in between £20,000-£30,000 in 2019 — who own their own a home has declined from 65 per cent in 1996 to 27 per cent today, the report said.
Today, buying is increasingly restricted to those with higher levels of household income and dual-income couples. Some 64 per cent of first-time buyers have household incomes of more than £40,000 and 16 per cent are individual buyers. Miguel Sard, managing director of Santander Mortgages, said the situation was likely to worsen unless the government took further action.
“Without change, home ownership in the UK is at risk of becoming the preserve of only the wealthiest young buyers over the next decade.” The warning comes at a time of intense competition between mortgage lenders, with many offering low rates and other deals, and growth in the number of home loan deals at loan-to-value rates above 90 per cent. Yet high house prices in many areas and tight mortgage regulations have still left many buyers struggling to pass lenders’ affordability tests.
The survey also quizzed people on what they would like to see the government do to help first-time buyers. Top of the list, with 37 per cent in favour, was a call to extend Help to Buy, the government’s popular equity loan scheme that is due to end in 2023. Thirty-five per cent would support rent caps; while 33 per cent were in favour of stamp duty land tax being cut for buyers of homes under £500,000 — a proposal floated by Boris Johnson during his campaign for the leadership of the Conservative party.
Santander did not lend its support to those proposals but used the survey as an opportunity to sound its own call to action. Noting that the inability to raise a deposit was seen as the biggest barrier to ownership among aspiring buyers, it suggested an extension of the current Forces Help to Buy scheme, which allows those in the armed forces to take an interest-free loan of 50 per cent of their annual salary towards the purchase of a home, to a maximum of £25,000. This scheme could be extended to public sector workers such as nurses and police, Santander said.
It also questioned the “stress rate” that regulators require lenders to use when judging whether a mortgage is affordable. Borrowers must be able to afford the loan under a notional interest rate that is 3 percentage points higher than the rate customers revert to at the end of a fixed rate period. Graham Sellar, Santander head of mortgage business development, said the stress rate was originally based on a five-year projection of interest rates by the Bank of England.
Today, similar projections look much flatter in the medium to long term. “It’s a call to look at that figure and to make affordability better for customers, especially first-time buyers.” The research also underscored the role of the Bank of Mum and Dad in supporting first-time buyers. Forty per cent of those interviewed said they were relying on an inheritance to boost their deposit — much higher than the 10 per cent recorded in government statistics who used an inheritance for this purpose in 2017-18.
The authors warned that the role of housing equity in providing a stepping stone for the next generation was limited. “As life expectancy increases, we can expect the number of people in care to increase and the wealth they have built up through property ownership quickly diminished,” the report said.