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First Time Buyer Crisis: finding a deposit seems harder than ever

High house prices relative to average earnings make raising a deposit a big barrier for first time buyers, a new study shows.

A 20 per cent deposit is equivalent to 110 per cent average income for a first time buyer – a record high, up from 102 per cent a year ago, according to the Nationwide.

Meanwhile house prices have risen quicker than earnings over the last year resulting in an increase mortgage payments relative to take-home pay.


“In the third quarter of this year, the UK first time buyer house price to earnings ratio stood at 5.5, above the previous high of 5.4 in 2007, and well above the long run average of 3.8” explains the Nationwide senior economist Andrew Harvey.

“While there continues to be a significant gap between the least affordable and most affordable regions across the UK, this has remained broadly stable over the last year. London continues to have the highest house price to earnings ratio at 9.0, although this is still below its record high of 10.2 in 2016.

“Scotland continues to have the lowest house price to earnings ratio in the country at 3.4, closely followed by the North region at 3.5. 

“Looking over the longer term, Northern England and Scotland have historically seen lower HPERs than Southern England, Wales and Northern Ireland.”

Harvey says that one of the consequences of high house prices relative to earnings is that raising a deposit is a huge challenge for prospective first time buyers - although the situation does vary across the country. 

A significant proportion of first time buyers draw on help from friends and family or an inheritance to help raise a deposit.

“In 2019/20, around a third of first time buyers had some help raising a deposit, either in the form of a gift or loan from family or a friend or through inheritance – up from 27 per cent 25 years ago” reports Harvey.

However, Nationwide says that first time buyer mortgage payments - based on an 80 per cent loan-to-value mortgage, at today's interest rates - are only slightly above the long run average, at 31 per cent of take-home (net) pay.

But the cost of servicing a typical mortgage as a share of take-home pay is now above its long-run average in the majority of UK regions.


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