Deposits still holding 62% of would-be buyers back

83% of non-homeowners aspire to join the property ladder, but despite the return of 95% mortgages under Help to Buy 2, 62% of these would-be first time buyers still cannot afford the necessary deposit.

Related topics:  Mortgages
Amy Loddington
17th March 2014
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The study, by leading mortgage insurance provider Genworth, shows a further 19% cannot afford the monthly mortgage payments for the home they desire – a significant number, but three times fewer than struggle with meeting deposit requirements.

Only 32% of aspiring owners are actually saving for a deposit including just 17% who are able to save each month. Regular savers put aside an average of £393 a month for a deposit.

At this rate, it would take them 1 year and 7 months to raise a 5% deposit (£7,792) for the average first time buyer home in the UK, and 3 years to do so in London.

Without Help to Buy 2 boosting access to high loan to value mortgages, they would face a wait of nearly 5 years (or 9 in London) to save a 15% deposit for an 85% mortgage – the typical maximum LTV for first time buyer products pre-Help to Buy.
 
Despite speeding up the time needed to save for a deposit, there is widespread ignorance about Help to Buy 2 with 40% of aspiring homeowners having no knowledge of the scheme or no understanding of how it works. Those under 30 are the most affected.

Optimism about getting a mortgage has grown among the under-30s since Help to Buy 2 launched: 37% of aspiring homeowners in this age bracket feel their chances have improved in the last six months, while just 16% feel the opposite. But would-be owners above the age of 30 have grown more downbeat overall.

Just 5% of aspiring homeowners expect to buy their first home in the next 12 months and 73% do not expect to do so before 2017 when Help to Buy 2 is due to have finished. 

More than one in three (36%) feel they have no prospect of buying a home in the next ten years and a similar number (33%) have given up hope of ever raising enough for a deposit.

Simon Crone, Genworth Vice President – Mortgage Insurance Europe, comments:

“We should be under no illusion that the problems confronting first time buyers will disappear overnight. Raising a deposit of 15% or more is an insurmountable challenge not just for younger generations, but also for many in their thirties and forties who have been locked out of the property market for most of their adult lives.

“Help to Buy 2 has made a start at returning 95% mortgages to their rightful place in the mortgage market. But it is a long term challenge that needs a long term solution. We cannot simply desert aspiring buyers after 2016. The government needs to set out the next steps and look at how private insurance can make competitive 95% mortgage products a permanent option.”

The financial challenge of raising a deposit means aspiring homeowners are becoming less likely to get married or start a pension before buying their first home, compared with existing owners.

Aspiring buyers are also twice as likely to have children without the stability of owning the family home: 20% plan to do this, compared with 10% of existing owners who did the same.

More than one in three (34%) are side-lining a host of life events in pursuit of homeownership as they have no plans either to marry, start a family or begin saving for retirement before they buy a home.

Simon Crone continues:

“Taking years to save a 15% deposit is asking far too much of many people and will have disastrous effects by turning them away from property for good or forcing them to put other important life events on hold. Raising a 5% deposit is far more realistic and far healthier for society providing people can safely afford their repayments.”

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