The number of first-time buyers is increasing, according to figures from Halifax. Yet renters remain pessimistic about their ability to buy a house in the future thanks to high property prices and required deposits. However, there are steps that aspiring homeowners can take to increase the deposit they have to secure their first home.
Over half of property purchases across the country are now made by first-time buyers, according to Halifax’s First-Time Buyer Review. The number of people taking their first step on the property ladder has reached its highest point in a decade.
Despite the positive news suggesting the market is becoming easier to access for first-time buyers, the overall outlook is negative.
- Almost half of 18-34-year olds think it’s harder than ever to get on the housing ladder
- One in five believe they will be renting forever
- Renters aged 31-34 are even more pessimistic; with 26% saying they’ll never be able to buy a home
For many, it’s the price of properties and the deposit required that’s causing an issue. In fact, the UK property market is so expensive that 16% would consider moving abroad for cheaper prices.
The average first-time buyer is paying £208,741 for their first home, a 21% hike in just 10 years, according to Halifax. In the South-East, the figure is even higher at £275,632, second only to London. To secure their dream property, those moving from renting to owning have, on average, a deposit of £33,127; a huge increase of 71% since 2008.
Russell Galley, Managing Director at Halifax, said: “First-time buyers are having to dig deeper than ever to get onto the property ladder. With the average price now over £200,000 and deposits at £33,000, it’s not surprising that the average age of a first-time buyer has crept up to 31.
“Despite these increases, and the concern many young people feel about home ownership, the number of first-time buyers continues to grow and is nearly back to the peak seen in 2006. Government measures, such as Help to Buy, and record-low mortgage rates continue to make buying more financially attracting than renting, with savings of £900 a year.”
Five ways to build your deposit to get on the property ladder
1. Think about a Help to Buy ISA
The Help to Buy ISA was designed to encourage first-time buyers to save a deposit. The cash bonus makes it an attractive option.
You can open a Help to Buy ISA account with an initial deposit of up to £1,200. From there you can add a maximum of £200 each month. As well as the interest rate on your account, the government will top up your savings by 25%, up to £3,000.
If you’re planning to buy a home with someone, you can both open a Help to Buy ISA, doubling the government bonus you jointly receive to £6,000. The drawback here is the contribution restrictions mean it will take over four years to maximise the account benefits.
2. Consider a Lifetime ISA
If you want to save more each month and secure your home sooner, a Lifetime ISA (LISA), if you’re eligible, could be an alternative to the Help to Buy ISA. The LISA can be used by both those looking to save a deposit on their first home and individuals planning for retirement.
The annual maximum you can deposit in a LISA is £4,000, which will benefit from a 25% government bonus. You can use the savings to purchase a property worth up to £450,000. If you’re able to put away more than £200 each month, it’s will be more efficient than a Help to Buy ISA.
However, if you prefer savings that offer flexibility, a LISA may not be for you. Should you wish to withdraw your money before you turn 60 for a purpose other than buying your first home, you will incur a penalty.
It’s also important to note that a LISA can only be opened by those aged between 18 and 40, although you can continue to make contributions until your 50th birthday.
3. Learn more about the Help to Buy Equity Loan
The government Help to Buy Equity Loan scheme means you can purchase a property with just a 5% deposit, cutting down how long it will take you to save.
Alongside your 5% deposit, you can access a government loan of up to 20%, with a mortgage making up the remaining 75%. The maximum you can borrow through Help to Buy is £120,000 (rising to £240,000 in London). You get five years to pay off the equity loan without it incurring any interest. Once this period ends interest starts at 1.75% and is then tied to the Retail Prices Index (RPI) plus 1%.
4. Look at Shared Ownership opportunities
If you’re looking to buy a property that’s out of your current budget, Shared Ownership is something you should explore.
Rather than buying a whole property, you buy a portion of it and rent the remainder. If, for example, you’ve been offered a mortgage of £100,000, you could buy 50% of a property that’s valued at £200,000. You’ll have the option to buy more of the property over time, gradually reducing the rent you’re paying as you own more of it.
As you’ll be taking out a lower value mortgage, the deposit amount required will decline in line with this.
5. Ask for help
If you’re currently struggling to save a deposit, asking for help from family and friends can put you on the right path; and you won’t be alone in taking this option either.
More than a third (34%) of new buyers have received some form of help from their parents, providing money as either a gift or loan, figures from the Office of National Statistics indicated.
Receiving support of this kind means you can take the leap to property ownership sooner.
Help from your family and friends doesn’t just have to be financial either. Moving back home means you can free up significant sums each month that you’d otherwise be paying on rent. Alternatively, you could ask someone who is already a homeowner to act as your guarantor, this can mean receiving better interest rates and a lower deposit being required.
You can also ask from help from us. As mortgage advisers, we understand the challenges first-time buyers face and can provide you with guidance when it’s needed. If you’re ready to move forward, contact us today.