First-time buyer comparisons over a lengthy period are of course going to bring up some huge discrepancies in terms of what was achievable then, and what is achievable now.
And while I tend to think that a 50-year comparison may be pushing the timeline somewhat, Mojo Mortgages’ recent data set looking at the experience of a first-time buyer in 1974 compared to this year does contain some interesting figures, particularly the up to date ones.
What jumped out immediately to me was the amount of deposit being saved, on average, by today’s first-timer and the length of time it was taking them to save it.
According to the statistics, first-timers are saving £58,303 on average for a first home, which works out at around 22% of the value of an average property, valued at £265,012.
We might all understand why a first-time buyer wants to save more – in order to keep the loan amount down and access the most competitively-priced mortgages – but when it is taking them, on average, 11 years and three months to save this, then you have to wonder why more aren’t simply seeking to secure the lowest deposit amount available that will allow them to secure a mortgage.
For some the saving of just a 5% deposit won’t work as they might not be able to make the affordability criteria required, but many will, and it seems like a long and thankless task to be waiting over a decade to get on the ladder when they may well be able to achieve this much sooner via a 95% LTV mortgage.
Now, of course, the pricing on those 95% LTV mortgages is going to be more than what would be achievable on a product where the buyer was able to put down 22%, but clearly the amount of time it takes to get to the deposit is far in excess of what it would take to save 5%.
How much money would be ‘wasted’ having to cover rent, for example, while saving up for that deposit? We all know how rents have risen in recent years and, by the same token, average wages have tended to not keep pace.
Looking at the difference between the mortgage amounts payable on the best-priced products, they are not that sizeable either.
If you were able to put down a 22% deposit you could pick up a best-priced five-year fix currently of 4.26% which would give you a monthly payment of £1,121 on your mortgage. However, a 5% deposit could get you a 4.9% five-year fix which would cost £1,457 per month – a £336 payment difference, but one that would be made on a home that you owned, building up equity in it, rather than for example a rental one.
Plus, as mentioned, you would be in that first home in a much quicker time, rather than feeling the need to wait a decade or so in order to secure a deposit that got you a relatively minor improvement in mortgage rate.
It’s an interesting conundrum but I tend to believe that many would-be first-time buyers are somewhat unaware of what can be achieved in today’s market with just a 5% deposit. Perhaps there is a misconception about the number of products available or that they are somehow hugely different in price to those at 75%/80% LTV?
While these are ‘best buy’ differences highlighted above, the vast majority of pricing is not that different. Indeed, if you’re of the opinion that rates are likely to come down further, and many are, then there are some highly-attractive discount and tracker rates which may also be of interest at the 95% LTV level, which could yield cheaper mortgage payments should Bank Base Rate drop during 2025 and beyond.
The simple fact of the matter is that the industry must get better at educating would-be first-timers that a 22% deposit is not required to get on the ladder. A 5% deposit can be ample; indeed as we’ve seen with some great product innovation in this space, even that may not be required, for example, if the borrower can show they have been making regular rental payments over a length of time.
Overall, we are in a much healthier position when it comes to high LTV product provision – particularly from the mutual sector with many utilising innovative private mortgage insurance solutions in order to offer these at very competitive rates – than we have been for some time. A 5% deposit can be enough and the more people aware of this, the more that won’t feel they have to save for decades in order to make a property dream a reality. Over to you the mortgage market community.
