Published: 28 September 2023
Buying a home has never been easy, but it’s arguably never been as hard as it is right now. Homeownership has slowly been declining over the past 20 years, and now young people are only half as likely to own their home than in the 1980s.[1]
This means a generation of potential first time buyers face the possibility of never being able to buy a home. We’ve got some ideas to help prevent that, but first, let’s take a deep dive into the situation.
A generation gap
It’s no secret that today’s generations don’t really agree on this topic. Both think they’ve had it harder than the other, but the truth is each generation has faced their own obstacles.
Earnings were seven times lower in 1982 than 2022, and interest rates were far higher[2]. Not an easy combination to tackle. But if you compare deposit amounts as a proportion of earnings, a very different picture emerges.
House prices have risen so much that they completely outweigh today’s higher salaries. In 1982 you’d be expected to save a deposit that equaled 25.5% of your earnings, but in 2022 that had risen to a massive 115.1%.[3] This figure alone is enough to make some people’s hopes of home ownership become a pipe dream.
The deposit barrier
There’s no mystery surrounding the biggest barrier to home ownership. It’s the deposit. Varying from an average of £30,000 in the North East, to £160,700 in London,[4] these massive numbers are looming over most hopeful home owners.
Some have overcome that, though. Nearly 67,000 first time home purchases were supported by the government’s Help to Buy ISA in 2022, and over 28,000 first time buyers used a Help to Buy equity loan.[5] While very helpful, both schemes have now ended. The bank of mum and dad is still very much up and running though, for those lucky enough to have access.[6]
Even if they’re not in a position to stump up some cash, parents can still make a significant difference to their children’s buying chances. If a hopeful first time buyer could live rent-free with their parents, it’d take them 4.4 years to save up a deposit. If not, and they live in London, it’ll take them 25.8 years instead.[7] It’s not surprising that 40% of first time buyers relied on parental help with their deposit in 2019.[8]
One thing is clear - the gap between those who can and can’t afford to buy a home is getting wider.
Crunching the numbers
Since 2022 interest rates have risen, providing yet another obstacle to those hoping to get on the housing ladder. This year[9]:
- The average first time buyer house price is £280,000, compared to £270,900 in 2022.
- Mortgage repayments for first time buyers average 22% of their gross earnings, compared to 17.4% in 2022.
- Average first time buyer deposits stand at 26% of the total purchase price (£73,100) compared to 24% (£68,600) in 2022.
- There were 25% fewer first time buyers in March 2023 than in March 2022, and we predict a loss of over 400,000 first time buyers in England between 2023 and 2027.
Building the future
A house is not just bricks and mortar. It’s a place to call home, something everyone deserves. That’s why we’re on a mission to fix home ownership for generations to come.
Rather than pointing fingers, we’re working together with the housing industry and the government to get back on the right track. As part of this, we’ve come up with the following recommendations:
- Build more homes of all types – and quickly!
- Increase affordable routes to home ownership and protect renters that are saving for deposits.
- Support deposit savings by reforming schemes such as the Lifetime ISA.
- Make it easier for people to improve their credit scores by including rent and other regular payments.
There are no quick fixes for the current situation. But we hope, with these recommendations in place, we can start taking big steps towards bringing home ownership within reach of more people.
Want to learn more about what we’re doing to try and fix the housing market? Read our full report (PDF, 3.5MB).
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.
[1]Source: Resolution Foundation, 2021 (PDF, 601KB)
[2] Source: WPI Strategy calculations using Regulated Mortgage Survey & HMRC / National Archive data
[3] Source: Regulated Mortgage Survey (RMS), UK Finance
[4] Source: WPI Strategy calculations using RMS data
[5] Source: UK Government data, 2022
[6] Source: Savills, 2023
[7] Source: WPI Strategy calculations using RMS data and Valuation Office Agency rental, 2022
[8] Source: YouGov, 2-25 March 2022
[9] Based on data collected by UK Finance in its Regulated Mortgage Survey (RMS)
