It probably won’t come as a shock to anyone that the average age of a first-time buyer in the UK is now 35 years old. Getting onto the property ladder is getting more and more difficult as property prices increase and getting a mortgage is trickier. The biggest problem that first-time buyers have and have historically always had is saving enough money for a deposit. There are many ways that you can get a deposit for a house but new research suggests that getting a gifted deposit is the best option for struggling new buyers.
How Long Does It Take To Save A Deposit For A First-time Buyer?
There is no real concrete answer to this question, but we can give you a good idea based on national averages. Of course, different people earn different amounts of money per year and the emergence of new industries such as digital content creation can earn young people hundreds of thousands or even millions a year. However, the average salary for a 30-39 year old in the UK is 33,839 per year. That is about £2,200 a monthly after tax. The average rent in the UK is now £1,100 with areas like London at £1,800 a month.
That leaves £1,100 after rent and the average energy bill per month in the UK is £180. That means that you will be left with £920 a month to pay for food, shopping, insurances (like car insurance), transport, other essentials. Let’s say that after all that, you might only have £200 left over…if you are lucky. So, if you save £200 a month, you would save £2,400 a year. If you were buying a £180,000 starter home, you would most likely need a minimum of 5% deposit, but more likely closer to 10%. It would take the average first time buyer 7 and a half years potentially to save enough deposit for a £180,000 house.
These figures are all based on averages and are not definite facts, but hopefully they can illustrate how difficult saving a deposit could be. For someone purchasing in London where the average price of property is £524,000 this could be near impossible to save for most people. Luckily, there are different options to help new buyers with their deposit.
What Options Do First-Time Buyers Have?
Gifted Deposit:
Research conducted by More2Life, the later life mortgage lender, showed that the average deposit paid by first-time buyers in England is £23,549. That means that using the figures above, a first-time buyer would have to save for around 10 years just to put down the average deposit. However, More2Life’s research has shown that the average deposit in the UK gifted by a family member is around £61,596. Over 2.5X what an average first-time buyer could save on their own.
Gifted deposits, if you can get them, are a great way of boosting your standing when purchasing your first home and can save you 10 years of….saving! Fortunately most mortgage lenders will accept a gifted deposit and most will need minimum proof of where the deposit has come from. Standard criteria for a gifted deposit is that the gift must be non-refundable, from a close family member such as a parent or grandparent or sibling, and must be in a UK bank account. So if your parents or grandparents are generous enough to gift you money for a deposit, this could really be a lifeline for struggling new buyers.
Loan For A Deposit:
Definitely not a recommended solution for first-time buyers, but an option. There are next to no lenders that offer this but a couple that do. Essentially you would borrow a loan from a lender and use this as your deposit. The remining value of the property would then be mortgaged so essentially your entire property would be owned by the bank. This is not often recommended unless absolutely essential as you will be taking on a lot of extra debt and would really limit your mortgage options. You affordability will also be impacted and you won’t be able to borrow as much mortgage as you normally would.
Essentially how it works is that you would get a loan, pay this back per month and then pay your mortgage back on top of this too. The lenders who offer this kind of mortgage also often insist that you take the deposit loan out with them too and they will include the monthly commitment in your mortgage affordability tests.
Purchasing Schemes That Require A Low Deposit:
There are currently schemes such as shared ownership which can allow you to put down a lower deposit than normally required and we expect that over the next few years, we will see more schemes emerge offering a similar deal. The shared ownership scheme allows buyers to purchase an initial share of a property and pay rent on the other share that they don’t own. Eventually the buyer can then staircase up to full ownership of the property as their income increases.
For example, a property could be on the market for £250,000. Under shared ownership, you could purchase a 25% share of the property worth £62,500. With a 5% deposit and a 95% mortgage a first-time buyer could put down as little as £3,125 deposit or 16 months of savings using the figures above.
Where Should First-Time Buyers Start?
If you are a first-time buyer and worried out your deposit, the best thing to do is to call us at Oportfolio. We will put you in touch with a specialist mortgage advisor who can go through your situation and finances with you, and will help you to determine what you can afford, how much deposit you need, and the best route forward. Our initial consultations are free of charge, so give us a call if you are looking into your mortgage options. We’re here to help.
