"We would encourage the government to build on the ambition behind Your First Home and address the affordability challenge faced by the very people the scheme is targeting."
- Richard Dana - Tembo
Following the Prime Minister’s announcement of the Your First Home scheme last month, digital savings and mortgage platform Tembo modelled the scheme across 17 cities in England in its Q3 First-Time Buyer Index.
As a result, it found that Your First Home could remain out of reach for lower earners in three-quarters of cities analysed, despite its lower deposit.
Under Your First Home, eligible first-time buyers will be able to buy participating new-build homes with a 2.5% deposit, supported by a 20% government equity loan, leaving 77.5% of the price to be covered by a mortgage.
Across the 17 cities, the typical wait time to save for a deposit fell to 18 months under Your First Home, compared to 34 months to save for a standard 5% deposit, with the biggest wait reductions revealed to be for buyers in London and Brighton.
However, the analysis suggests that this does not represent a problem disappearing, but instead the challenge would shift from saving enough to borrowing enough.
Buyers earning at the lower end of local salaries would need a mortgage of more than 4.5 times their income to buy an average new build in 13 of the 17 cities. Even those on the median local salary would exceed that threshold in eight cities, and higher earners in four.
A lower earner in London would need to borrow 9.9 times their salary, whilst in Leeds it would be 8.7 times, in Newcastle 8.4 times and Leicester 8.2 times. Only four cities, Birmingham, Stoke-on-Trent, Liverpool and Southampton, keep lower earners below the 4.5x threshold.
Tembo says that while lenders can offer mortgages above 4.5 times income, options are restricted, especially for buyers with small deposits.
Furthermore, it says that because additional financial commitments such as service charges are excluded from the calculations, the true affordability challenge will be greater still for those buying leasehold new builds. The smaller deposit also leaves buyers with a thinner equity cushion if house prices fall.
Due to Your First Home being restricted to new builds, buyers will be shopping in a distinct but often more expensive segment of the market. Across the 17 cities, the average first-time buyer new build costs £236,750, which is £9,809, or 4.3%, more than the average first-time buyer home. In 10 of the 17 cities, new builds are more expensive.
In addition, the gap is widest in cities that are otherwise among the most affordable in the country. Newcastle and Leeds are among the hardest hit, coming in 4th and 6th in Tembo’s First-Time Buyer City Index, yet the modelled Your First Home purchase price is 67%, or £121,311, higher than the average first-time buyer home in Newcastle, and 50%, or £108,393, higher in Leeds.
Other areas that show similarly wide gaps are Bradford at 52%, and Derby and Hull, both at 45%. Compared with a standard 5% deposit, buyers would save just five months faster in Newcastle, six in Hull, and seven in Bradford and Derby.
Tembo also warns that Your First Home could also push prices higher. The government’s own evaluation of Help to Buy found that homes bought through that scheme were 0.9% more expensive than comparable new builds. If Your First Home has a similar effect, it would add around £2,100 to the price of the average first-time buyer new build.
Richard Dana, CEO and founder of Tembo, said: "For anyone who has spent years struggling to save, a 2.5% deposit sounds like a gamechanger, and our analysis shows Your First Home could cut more than a year off the time it takes.
"But a smaller deposit is only one part of the equation. In three-quarters of the cities we analysed, lower earners would still need to borrow well beyond 4.5 times their income, where lending options become far more limited. The challenge simply shifts from saving enough to borrowing enough.
"This quarter, our first-time buyers were older and wealthier than ever, with the average age at mortgage application rising to 34, from 31 just a year ago. That raises a trickier question: are younger and lower-earning buyers being pushed further out of the market?
"If Your First Home is going to genuinely broaden access to homeownership, rather than mainly boosting the buying power of those who can already secure substantial mortgages, it has to tackle the borrowing barrier as well as the deposit one.
"We would encourage the government to build on the ambition behind Your First Home and address the affordability challenge faced by the very people the scheme is targeting.
"In addition, to consider how small changes to first-time buyer Stamp Duty relief and the existing Lifetime ISA could make existing support more equitable, helping average buyers in the most challenging cities in the UK to become a homeowner."
