New figures showing the growing size of first time buyer deposits suggest that many would-be purchasers will be staying with the private rental sector in the next two years at least.
That’s because new research from the Mortgage Advice Bureau shows that first time buyers planning to purchase a home in the next 24 months are aiming to save over £11,500 more for their deposit. While the challenge of saving for a deposit isn’t a new one, the size of prospective buyers’ deposits is having to increase. This is due to economic factors limiting how much people can borrow.
On average, prospective buyers said they thought they would need to save £36,118 for their deposit. However, MAB says that for 62% of them, this has increased, with future homeowners expecting to need an additional £11,500 in light of recent economic uncertainty. This is putting plans on ice for some, with 15% of prospective buyers delaying their plans to buy altogether. Saving for a deposit remains one of the biggest barriers to homeownership for almost a third of prospective homebuyers.
AI For a quarter the higher cost of borrowing means they will have to save more, while one in 10 (11%) say the amount they are needing to save has increased due to them wanting a lower loan to value. Meanwhile, 8% will now turn to the Bank of Mum and Dad for help.
Ben Thompson, deputy chief executive at Mortgage Advice Bureau, says “there are many challenges for prospective buyers to overcome before they get the keys in their hands, and right now, they’re coming from all sides. Economic volatility has seen prospective buyers battle high inflation, pushing prices up and limiting the amount they can save. Meanwhile, higher interest rates have lowered the amount they can borrow, meaning bigger deposits are needed. This has led to many prospective buyers having to put more away than they had initially planned. Nevertheless, there are some positives that can be taken from this. For those saving for a mortgage, it’s time to take advantage of higher interest rates on savings, with fixed rate accounts in particular offering good rates. Government initiatives, like the Lifetime ISA and Help to Buy ISA (for those who had an account before the scheme closed) can also help. Whatever stage you are at, it’s worth talking to a broker who can help you get mortgage ready.”
The research from Mortgage Advice Bureau also found that prospective buyers are making significant cutbacks to try and be able to afford their dream home, with a quarter having cut back on socialising, and a similar proportion on luxuries.
How to get on property ladder without bank of mum and dad - tips from young homeowners
Home ownership feels like an impossible dream for most 20-somethings, many of whom are still living in their childhood bedroom at their parents' house feeling like they may never fly the nest. Those who have are, more often than not, trapped in grotty rented flats, using at least half their earnings on rent and unable to save due to the cost of living crisis. A recent survey found that at least one in four new UK homebuyers under 25 rely on 'the bank of mum and dad'. The massive scale of parental support for young people seeking to buy their first property has been revealed in a UK study.
A blogpost by a Bank of England economist found that even before the sharp increase in house prices during the Covid-19 pandemic, the children of better-off parents were able to become owner occupiers four years earlier than those without parental support. The study, which looked at mortgages issued between 2015 and 2017, said that of every 100 homeowners under the age of 30, 16 would have received help from the bank of mum and dad (Bomad), rising to one in four for those under 25.
"Those who have had help from their parents put down a deposit twice as large, bought bigger first homes, and had smaller mortgage payments than those who did not,” wrote May Rostom on the Bank Underground site."
But some savvy savers are managing to buck the trend without turning to their parents and buying their own home. In 2022, home owners younger than 35 were roughly 10% of all home owners in England...so it can be done!
Top 10 tips:
- Make the most of your lifetime ISAs for "free" money.
- Research high-interest savings accounts and save regularly.
- Set up direct bank transfer so you automatically save every month.
- Research schemes designed to help first-time buyers
- Improve your credit score. If your credit rating needs a boost, there are various ways to improve it, such as closing down credit card accounts which you no longer use, clearing outstanding debts, paying your bills on time and checking you’re on the electoral roll.
- Start saving for a house deposit as soon as you can. The later you leave it, the harder and more expensive it will be.
- Speak to a mortgage advisor and get as much professional help as you can.
- Research areas where you can afford to buy a house. Consider cheaper districts.
- Look at buying a house that needs some work for a cheaper sale price.
- Consider how much of the renovations and DIY you can do yourself to save money.