Mortgages: A generation of renters ‘locked out’ of the housing market

New research has confirmed just how hard it is for first time buyers to save a large enough deposit to get onto the housing ladder.

The research from housing charity Shelter, took into account a variety of factors, including earnings, rental levels, house prices and essential spending, to calculate the average length of time it takes to save a big enough deposit. Whilst the research only looked at areas of England, the results are likely to be replicated in Wales, Scotland and Northern Ireland.

Shelter’s findings are startling:

• The average house price for a first time buyer is £139,920
• The average deposit required to buy a home is £27,894, equivalent to 20% of the purchase price
• A first time buyer couple will take on average 6 ½ years to save the required deposit
• But, a couple with a child will take 12 years, nearly twice as long
• A single person will take just over 14 years to save the required deposit

As part of their research, Shelter has created a calculator to help people work out the length of time it is likely to take them to save a large enough deposit.

Click here to use the calculator.

Regional differences

The report found huge regional differences.

Unsurprisingly, would-be first time buyers in London face the longest wait, with couples having to save on average for 11 years, couples with a child 20 years and single people an eye watering 29 years.

Experts suggest that as most graduates will only start saving when they leave university, it could be well into their 50’s before a single person can afford to get onto the housing ladder. As mortgages are typically arranged over a minimum of 25-years, this could make home ownership in London impossible for a whole generation of potential homeowners.

The North East, North West and Yorkshire and the Humber, had the shortest waiting periods for all three groups.

Reacting to the research, Campbell Robb, Chief Executive of Shelter, said: “This is the first time research like this has been conducted at a local level to reveal the harsh realities that ‘generation rent’ is having to confront because of our shortage of affordable homes.

Robb continues: “Despite working hard and saving what they can each month, today’s young people face life-changing choices between starting a family or buying a home of their own. Imagine a 28 year old couple weighing up their options: they can save for a home now and put off starting a family until they’re 35, or they can start a family now but accept they’ll be renting until their child is a teenager.

“Meanwhile, single people face an added pressure to either find a partner or to live with their parents well into their thirties if they’re ever to have a hope of saving enough for a deposit.

“It seems the only ones with any hope left are the few who can resort to the bank of mum and dad. But with so many parents already feeling the squeeze, this is not a sustainable option.” (Source: Shelter)

Help for first time buyers

The government has launched various initiatives to help first time buyers.

The largest such initiative is the Funding for Lending scheme. This scheme offers banks and building societies a cheap source of finance, which was supposed to make mortgages more accessible to would-be first time buyers. However, most mortgage experts believe the scheme has failed in this aim; whilst interest rates have certainly fallen, it is clear the mortgage market has not become significantly easier for first time buyers.

The latest initiative is the Help to Buy scheme. Launched in the last Budget, the scheme comes in two parts, giving either an interest free loan of up to 20% of the value of the property, with the buyer having to put down just 5%, or guaranteeing part of the loan. However, the scheme is open to all homeowners, leading to concerns it will not specifically target the problems facing first time buyers.

To learn more click here to visit our latest Q & A: Everything you need to know about the Help to Buy scheme.

Are you a first time buyer? Do you need mortgage advice?

Our mortgage adviser, Linda Wood, is here to help you.

If you are a first time buyer, or have only a small deposit, and would like advice on your options call Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

Your home may be repossessed if you do not keep up repayments on your mortgage.

For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.