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Has buying your first home ever been affordable?

While first-time buyers will point out that the amount you need to save to buy a home in 2018 is greater than ever before, previous generations also had their own mountains to climb. Scroll down to read more in our article below.

A man holding a box and a woman holding a plant smiling as they move into their new home

While the obstacles that would-be buyers face have changed over the years, it seems that homeownership has never been an easy aspiration to achieve. So, has buying your first home ever been affordable?

Higher prices, but rock-bottom rates

According to figures from Nationwide Building Society, the average UK property is currently worth £211,756. That’s up from £156,828 just ten years ago, from £66,313 two decades ago, and just £1,891 when records began in 1952.

On the face of it, it seems as though those trying to get their foot on the ladder today have a far tougher challenge than those who have bought in the past.

But today’s buyers also have available to them some of the lowest mortgage rates on record. The average interest rate on a two-year fixed mortgage today is just 2.35%, according to Moneyfacts. Meanwhile, in 2008 the typical rate was 6.58% – almost three times higher.

That difference has a huge impact on the monthly repayments borrowers must make. Monthly repayments on a £200,000 mortgage on the current average two-year deal would be £882, compared to £1,360 a decade ago.

The typical standard variable rate (SVR) on a mortgage has fallen too, from 7.5% in 2008 to just 3.99% today, according to analysis by London & Country Mortgages.

Around two million UK homeowners are currently on their provider’s Standard Variable Rate (SVR). Monthly repayments on a £200,000 mortgage would be £1,055 at today’s average rate, and £1,478 a decade ago. Meanwhile, those on the typical SVR of 8.7% two decades ago would have been making hefty monthly repayments of £1,637 on the same loan.

Average earnings are on the up… but does that help?

Figures from the Office for National Statistics show the average weekly total pay for a UK worker is currently £506, up from £434 in 2008 and £312 in 2000.

A single monthly repayment for someone on their mortgage provider’s SVR would currently require 2.1 weeks’ earnings. In 1998, some 3.4 weeks’ earnings would have been needed to cover a monthly repayment.

Certainly then, monthly repayments today seem more manageable. But how has saving for a deposit changed? A 10% deposit on the average UK home today is £21,143 – equivalent to some 41.8 weeks’ earnings, and that’s before tax.

A 10% deposit on the typical home in 2008 would be £15,682 – equivalent to 36.1 weeks’ earnings at the time. And this doesn’t take into account tax, bills and the higher cost of living these days.

Could stamp duty be hurting first-time buyers most?

Unfortunately, a deposit isn’t the only cost you may face when buying your first home. Stamp duty, solicitors’ fees, surveys and moving costs all add to the amount savers need to set aside. But for those buying a property worth the national average, the punitive tax should not add too much to the bill.

In 1998 the Government hiked stamp duty tax, raising the rate on properties worth £500,000 or more from 2% to 3%. Homes worth between £60,000 and £250,000 were subject to a tax of 1%, meaning stamp duty on the average property would be £663.

By 2008, properties worth over £250,000 faced a tax of 3%, but the nil-rate band was raised so those buying homes worth £175,000 or less paid no stamp duty – good news for those buying a first home at that time.

Today, first-time buyers frequently face hefty stamp duty bills. But in the 2017 Budget the Government announced a welcome measure: the tax would be cut for those buying a first home worth up to £300,000 (or £500,000 in London). That should mean that those purchasing a property worth the national average won’t pay stamp duty.

Government help for first time buyers

While it may seem that today’s first-time buyers are at a major disadvantage in many ways, particularly when it comes to saving a deposit, the Government has at least recognised the struggle they are facing. The introduction of the Help to Buy ISA and, latterly, the Lifetime ISA has provided a valuable helping hand for first-time buyers.

The Help to Buy ISA was launched in 2015 as a savings account dedicated to assisting those saving a deposit for their first home. It allows those aged 16 and over to save up to £3,000 a year to put towards the purchase of their first home, which the Government will top up by 25% at the point they come to buy.

However, the Government will only make a maximum contribution of £3,000 which makes saving any more than £12,000 in these accounts an unattractive option. This is a problem when a deposit on a typical home in the UK could require a deposit of more than double this amount. In addition, those with a Help to Buy account never actually see the 25% Government bonus, it’s just taken off the price of the property on completion. So this doesn’t really help towards the actual deposit, which is what first time buyers are struggling to find.

But the Help to Buy ISA has now been replaced by the more generous Lifetime ISA, which has some key differences. These accounts can be opened by those aged between 18 and 39 to save up to £4,000 a year, which the Government will top up by 25%. Money may be saved into a Lifetime ISA until the account holder reaches age 50 and cannot be accessed until age 60 unless it is to buy a first home.

The bonus these accounts offer means building a deposit of £21,000 only requires the saver to set aside £15,750 of their own money, for example, with the Government topping up the rest.

What does all this mean for first-time buyers today?

Rock-bottom interest rates and generous Government incentives mean that first-time buyers in 2018 are in a strong position relative to their predecessors, but taking that first step on to the property ladder is still no mean feat.

The amount needed for a deposit is far higher today than it has been in the past. Although it can feel like an impossible task, making use of a tax-efficient savings account can help provide a vital boost for anyone hoping to save for a deposit on their first home.

Find out more about OneFamily’s Lifetime ISA >


Written by Holly Black – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.