"Not only is the task of saving a mortgage deposit a sizable one, but when combined with the high cost of renting, it can prove impossible"
- Stephanie Daley - Alexander Hall
Mortgage adviser, Alexander Hall looked at the time required to save for the average first-time buyer deposit across Britain based on tucking away a proportion of net income (20%) whilst renting, versus saving the average monthly cost of renting instead whilst living at home with mum and dad.
The latest Gov figures show that the average first-time buyer house price now sits at £245,208. This means that to secure that first foot on the ladder, first-time buyers need to stump at a 15% deposit to the tune of £36,781 - a cost that has increased by 35% over the last eight years.
But it’s not just the increasing cost of a deposit that is presenting a barrier to homeownership for many first-time buyers. During the same time period, the average cost of renting has climbed by 34% to £1,307 and, whilst earnings have increased at a similar rate (35%), the average renter pays 41% of their gross monthly income in rent - climbing to 50% of their monthly net income.
So what does this mean when it comes to making the jump between the rental market and homeownership?
Based on historic rents and earnings data, analysis shows that it would have taken the average renter 85 months, or just over seven years, to accumulate the £36,781 required to place a mortgage deposit today when saving 20% of their net income each month.
However, had the same renter checked into the Hotel of Mum and Dad and tucked away the average cost of monthly rent, they could have accumulated the same mortgage deposit in just 32 months.
That’s less than three years, meaning they could get that first foot on the ladder 4.4 years sooner than those renting.
Stephanie Daley, Director of Partnerships at mortgage advisor, Alexander Hall, commented: “Traditionally, the rental market has acted as the stepping stone to homeownership for the vast majority, but with both house prices and rents climbing at a phenomenal rate, many renters are now finding that they simply can’t make the jump.
"Not only is the task of saving a mortgage deposit a sizable one, but when combined with the high cost of renting, it can prove impossible.
"So whilst living with your parents at a more mature age may not be ideal, it will likely mean you can get on the property ladder earlier.
"Lenders understand how difficult it is to save for a deposit and we are now seeing some really good innovation at low deposit levels, such as Accords £5,000 deposit option and Skipton’s Track record 0% deposit mortgage for those who are renting. Plus a number of lenders are now offering stretched income multiples to help first-time buyers get the borrowing they need.”
