x
By using this website, you agree to our use of cookies to enhance your experience.
Written by rosalind renshaw

The deposits required to buy houses have increased tenfold in the last 20 years – but household income has only doubled.

New research from online bank First Direct found that since 1990 – the depth of the last housing crash – the average housing deposit has risen from £6,793 to an average of £65,924 in 2011.

House prices have also risen in the same period, by 4.3 times, but household incomes have risen by only 2.5 times.
 
The research also found that 2010 was the most difficult year to buy a house in the past 20 years, with the average house price 6.3 times the average household income, and the average deposit running at 1.7 times the average income.

The most affordable years were 1995 and 1996, with the house price ratio at a low 3.4 and the deposit ratio at 0.3 times the average household income.
 
The past two decades have endured two recessions – the early 90s recession which lasted from Q3 1990 to Q2 1992 and the late 2000s recession, which officially ran from Q3 2008 to Q4 2009. In the first recession, household income rose albeit modestly and the average deposit required dropped and stayed low for most of the 1990s, as did inflation.
 
However, the more recent recession has been unkind both to existing home owners and first time-buyers. Between 2008 and 2009, average household income dropped by £1,688. While house prices also dropped by £10,148, the average required deposit rose by over £10,000 in one year alone, hitting first-time buyers particularly hard.

Despite house prices recovering somewhat, to date the average housing deposit has risen by £22,451.
 
The average LTV in 1990 was 88%, rising to 90% in the mid 90s and now at its lowest ever, at 73%.
 
Directly comparing the two recessions, the 90s downturn was tougher on home owners with mortgage rates hitting 15%, driving home owners into forced sales while prices fell dramatically. The 2000s downturn was tougher on buyers.
 
Bruno Genovese, senior savings product manager at First Direct, said: “Much has been made of rising house prices, but the average deposit needed in the first place has actually risen more than twice as fast as house prices and almost four times as fast as income. This is why we are seeing first-time buyers getting older, with more and more people struggling to get on the property ladder.”

Comments

  • icon

    rant: I got sidetracked and submitted half-way through finishing that post.

    My aim was to prove two things. What was missed from the post was, firstly, that over ANY twenty year period in almost half a century, house prices have done extremely well against any account you care to rest your money in HOWEVER you look at it; and that secondly, the rate of increase has slowed over the last decade and a half.

    Mate - the past is exactly that. Gone. However, looking into the past is the only way you can guesstimate the future.

    My guesstimate is that a new breed of buyer is going to emerge, as new breeds have emerged over the decades.

    This new breed will be those that semi-reluctantly buy because they don't want to pay someone else's mortgage off; want more surety than an AST that they will be living somewhere until THEY decide otherwise; and can find the money somewhere. Those who, deep down, know that - hurt or not - it makes sense.

    Question is... are YOU one of the new breed, mate?

    • 21 September 2011 14:47 PM
  • icon

    rant: Pick ANY twenty year period since say 1952, seeing as that is when Nationwides HPI goes back to.

    Tell you what - I'll do it for you. I'll show the LEAST multiple increase per decade! All using Q4 figures...

    1952 - 1972 House prices see 4.17x increase
    61 to 81 - 9.35x !!!
    79 to 99 - 3.40x
    89 to 09 - 2.64x
    1990 to 2010 - 2.97x

    Do you want to know what the HIGHEST multipliers were?

    Or is my stating the fact that the rate is WELL UNDER HALF of the 40-year average sufficient to subdue this subject...?

    • 21 September 2011 14:31 PM
  • icon

    Is that average rental yield of 5.5% with or without void periods, maintenance etc factored in?

    If it's without, then the rate of return is pretty poor. It's also on an asset that is currently depreciating in both real and nominal terms.

    Either way, for far less hassle, you can get savings accounts that even today are offering interest rates north of 4%. If it's still important to have someone trample mud into the carpet with that, I'm sure the bank staff will oblige if you ask them nicely.

    • 20 September 2011 22:50 PM
  • icon

    True CoTW, that is one possibility.

    Equally, if prices drop 10-15%, my landlord will take the capital hit so I don't have to. Which would be jolly nice of him.

    • 20 September 2011 15:41 PM
  • icon

    "Why do the very same EA's then moan when rightmove put up fees and why on earth do vendors accept higher fees from EA's."

    Because EAs got used to having it easy - in the boom years they were flat out and there was a buzz about the place. Now they're having to work for their money - and some agents are struggling as there are too few instructions to sustain the industry which was handling up to 1.4 million transactions a year a few years ago.

    I know several local agents who are doing rather well at the moment.

    • 20 September 2011 15:29 PM
  • icon

    SBC,

    With the average rental yield at 5.5%, the average mortgage rate at 3.5%, and the average house price falling at just 0.6% annually, waiting for that 15% fall may cost you a fortune....

    • 20 September 2011 14:58 PM
  • icon

    Sure CoTW it's fair to say that both renting and buying are both expensive. So what?

    Short of kipping on a mate's floor or dragging my family to live with the in-laws it's all a bit Hobson's Choice really.

    Where we differ is that you think prices are fine as they are and it's those pesky banks not lending that are the problem.

    I think prices are too high and would rather pay over the odds to privately rent in the hope that prices come down to a reasonable level. (I'll be happy with 15% off)

    • 20 September 2011 11:24 AM
  • icon

    "So, less sales, same(ish) prices and estate agents have jacked up their commission rate"

    Why do the very same EA's then moan when rightmove put up fees and why on earth do vendors accept higher fees from EA's.....In my opinion and fortunately for EA's too many vendors are like lambs to the slaughter.
    However they only have themselves too blame and I have little sympathy for them.

    • 20 September 2011 11:18 AM
  • icon

    I think the interest rate on the LTV makes a big difference as to whether it is cheaper to rent or buy right now.

    Mortgages are of course for 25 years and not just for Christmas. There do seem to be people who post on this site that have seen a classified document stating that interest rates are going to remain at today's level for the next quarter of a century.

    • 20 September 2011 10:20 AM
  • icon

    @SBC

    Who said anything about "priced out" FTB-s?

    With rent more expensive than mortgages in virtually all of the UK now, it's clear that the million or more people who have been prevented from buying in the last few years thanks to mortgage rationing are anything but "priced out".

    • 20 September 2011 09:47 AM
  • icon

    Funny how some people seem unable to comprehend the world around them. They say things like; "There will be no meaningful recovery in the housing market until EA's get these simple facts through their thick heads, and they start valuing houses to reflect the new reality."

    Reality is that house prices in many parts of the country - certainly the parts where most people live - are still high and are still selling - about 750,000 of them this year. So, less sales, same(ish) prices and estate agents have jacked up their commission rate to keep their income up. I see no pressure for a house price crash or a 'return to normal' whatsoever.

    • 20 September 2011 08:50 AM
  • icon

    This is like comparing the price of gold with the price of raw sewerage!

    In 1990, Q1, the average house price (Nationwide HPI) was £59587. Quarter 2, 2011, gives a figure of £166764.

    Using these figures, and those stated for deposits, a deposit of £6793 in 1990 would therefore equate to 11.4%. IN 2011, the figure becomes 39.5%!!

    • 19 September 2011 16:49 PM
  • icon

    Sure, comparing deposits with income is one yardstick but (of course) deposits are variable depending on how risk-averse lenders are.

    A much simpler comparison would be to compare average house price with average wage.

    CoTW, you can spare the faux moral outrage on behalf of the 'poor priced-out FTBs'; it's clear where your VI lies.

    • 19 September 2011 16:02 PM
  • icon

    A snapshot way to look at the figures.

    Take a photo of a ball bouncing at the bottom of its bounce and guess what?

    It looks like it is sitting still on the ground.

    The same principle applies to these stats.

    Required deposits are much higher than normal due to the current economic climate - this will settle down in due course.

    Property prices are relatively too high because of irresponsible lending - this will also settle down in due course (price reductions or inflation - take your pick).

    In 5 years time it will all be back to normal.

    Lies

    Damned Lies

    And Statistics

    • 19 September 2011 15:35 PM
  • icon

    A return to sensible lending also requires a return to sensible house prices. So far we have the former but not the latter - ergo the number of transactions remains low.

    • 19 September 2011 14:44 PM
  • icon

    "until mortgage funding returns to the sensible, prudent and historically normal standards of the past"

    That is precisely what has happened.

    Gone are the 100% mortgages, gone are the 5x mulitples, and gone are the liar loans.

    There will be no meaningful recovery in the housing market until EA's get these simple facts through their thick heads, and they start valuing houses to reflect the new reality.

    • 19 September 2011 10:48 AM
  • icon

    Mortgage rationing is not the problem, it is a corrective measure due to a shortage of cash after the economic collapse and mass irresponsible lending.

    This article clearly shows the problem is too high property prices. Prices went up 4.3 times and wages only 2.5 times, high prices are unsustainable. Now with a return to sensible lending sellers have to get realistic with their asking prices.

    • 19 September 2011 10:29 AM
  • icon

    I agree with much of what CoTW says in the statement

    "There will be no meaningful recovery in the housing market until mortgage funding returns to the sensible, prudent and historically normal standards of the past, where a stable job history, average credit scores and a 5% to 10% deposit is enough to get a non-punitive rate and the vast majority of applicants are approved"

    However should this include banks enforcing sensible lending multiples? (whatever they are?)

    • 19 September 2011 10:14 AM
  • icon

    CoTW, the mental gymnastics you are capable of to convince yourself that the price of a thing has zero bearing on the affordability of a thing I have to say is fascinating to behold.

    Everyone else will recognise that if house prices bubbled up alongside the bubble in easy lending, then as the bubble in lending deflates then so too will house prices.

    If people cannot afford them then the people who do need to move will need to accept what people can actually afford.

    • 19 September 2011 10:03 AM
  • icon

    ["The average deposit needed in the first place has actually risen more than twice as fast as house prices and almost four times as fast as income.

    This is why we are seeing first-time buyers getting older, with more and more people struggling to get on the property ladder.”]

    Absolutely spot on, and good to see this website covering such an important subject.

    Mortgage rationing is ruining the prospects of an entire generation of youngsters.

    Forced to enrich their landlords instead of building their own financial security for the future.

    There will be no meaningful recovery in the housing market or wider economy until mortgage funding returns to the sensible, prudent and historically normal standards of the past, where a stable job history, average credit scores and a 5% to 10% deposit is enough to get a non-punitive rate and the vast majority of applicants are approved.

    Which of course is just not the case today, where a 25% deposit is required to get a decent rate, just 0.9% of mortgages issued are for a 10% deposit or less, and where 60% of applications are rejected.

    • 19 September 2011 08:48 AM
MovePal MovePal MovePal