Why first time buyers are so reliant on the bank of Mum and Dad

11 January 2018

We know that first time buyers are finding it harder than ever to get a foot on the property ladder and are increasingly turning to friends and family to help out. However, when you consider that 66% of first time buyers in England are in the two highest income bands, we look at why it has become so tough to buy a first home.

What has changed?

In comparison to their parent’s generation, who were buying their first houses over 20 years ago, the number of first time buyers is dropping. According to the latest Government report, they are also older and more likely to be in a relationship with children to support. Perhaps surprisingly, they are also wealthier, with the majority falling into the highest income bands. In spite of this, 29%1 needed help from friends or family to pull together a deposit so they could buy their first house in 2015-16.

House prices are rising faster than wages

Rising prices has meant that the average house price is over 6 times the average UK wage2. It has been calculated that in real terms this is a gap of £6,1112 between the average wage and the salary needed to get a mortgage for the average home. This is based on lenders approving mortgages up to 4.5 times an individual’s salary.

This gap means that affordability is a real obstacle for first time buyers, and may be part of the reason why we see more buying as couples, their combined income making buying a house a possibility.

Deposits need to be larger

The days of 100% mortgages may have gone meaning finding the deposit for that first home is an increasing challenge. Latest figures show the average deposit for first time buyers in 2015-16 was just shy of £50k and a whopping £94k in London2. Two-thirds of recent first time buyers paid a deposit of up to 20% of the purchase price1.

In addition to rising house prices, the characteristics of available mortgages are also having an effect on the average size of deposits. Often better mortgage rates are available for those able to make a larger deposit. 19% of first-time buyers in 2015-16 paid deposits of over 30%1.

Higher living costs whilst saving

First-time buyers may be facing higher costs than their predecessors 20 years ago. Whereas previous generations may have stayed at home with their parents while saving for a house, the current generation of buyers need to cover rent and provide for their children while saving up for their first home.

How will lenders respond?

Now that first time buyers are increasingly reliant on friends and family to buy, will lenders change their offerings to make buying a home more accessible? We are already seeing new products emerging that take a sponsoring friend or family member’s assets into account. This may provide a welcome boost to a first time buyer’s borrowing potential.

We believe this is going to be an ever more important and challenged demographic. First time buyers will continue to get older and family life have an impact on affordability, so friends and family will increasingly be asked to fill the gap. Our role as a lender will be to provide more creative and flexible products to give greater choice and meet these new demands.

All statistics referenced are taken from the following sources:

1 English Housing Survey, First Time Buyers 2015-16

2 Average UK House Price to Wage Ratio

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