Just one in eight would-be first-time buyers can afford average starter home

Only one in eight potential first-time buyers can afford the average starter property in their area, new analysis has revealed.

High house prices, increasing living costs, insufficient savings, rising rents and mortgage rates have all combined to push home ownership out of reach for many young people, according to the study by the owner of Skipton Building Society and analysts at Oxford Economics.

It revealed almost four in every five potential first-time buyers have insufficient savings for the deposit needed to get onto the property ladder in their area.

The challenge is greatest for potential first-time buyer households in the bottom 25 per cent of earners – those earning £22,850 or less a year. 

For these first-time buyer households, fewer than one in 100 can afford to take the first step onto the property ladder in their local area.

But even among those earning over £71,250 a year – the top 25 per cent of earners – only 56 per cent still cannot afford to buy their first home in their local area.

The increase in house prices relative to incomes over the last 20 years has led to the average deposit size rising by around 160 per cent since 2005, according to the Building Societies Association.

The typical successful first-time buyer now needs a deposit of around £60,000, although it varies from as low as £27,000 in the North East of England to as high as £144,000 in London.

Skipton Group’s report found that nearly four in 10 renters are spending 45 per cent or more of their income on rent and other essential housing costs, creating a barrier to saving for a deposit.

Since January 2021, the average household rent has risen by almost a third, from £981 a month to £1,299 a month, according to the HomeLet Rental index.

Priced out: Almost four in five potential first-time buyers don’t have the deposit needed to get onto the property ladder in their local area, according to Skipton Group

Where is housing least affordable for first-time buyers?

First-time buyers have the most difficulty getting on the housing ladder in the West Midlands, according to the study. 

The typical home there is worth just over £250,000, less than the UK average of about £285,000. 

However, Skipton said the combination of low savings levels and rising house prices in the region have put home ownership out of reach for increasing numbers of people.

London, where the average house costs £523,000, was also found to be one of the least affordable locations – due predominantly to high house prices.

Wales was also deemed to be one of the most unaffordable areas for local first-time buyers despite average house prices being £216,000.

This is because lower average income levels in Wales make it harder for people to borrow the size of mortgage they need. 

In contrast, first-time buyers face the best prospects in Scotland, driven by lower first-time buyer house prices.

The East of England is also one of the more affordable areas for first-time buyers despite the average home costing £337,000.

This is driven by household higher average incomes, and savings that are large enough to offset high first-time buyer house prices.

Inflation sets back first-time buyers 

Despite recent wage growth and inflation falling back to the Bank of England’s 2 per cent target, the study claims that affordability is almost exactly where it was at the beginning of 2020, with little sign of improvement on the horizon. 

Since 2021, the rate of inflation has risen by more than 20 per cent, according to the Bank of England’s inflation calculator.

This means that people are typically having to pay more than £120 to buy the same basket of goods they could buy for £100 in 2021. 

This has eroded what people can put away each month for a deposit. 

Stuart Haire, chief executive at Skipton Group said: ‘Being able to have somewhere to call home is widely recognised as one of the most important issues facing millions of people up and down the country. 

‘For some, our findings paint a bleak picture, notably for first-time buyers. 

‘The combination of high housing costs, insufficient savings, and significant regional disparities underscores the urgent need for collaborative and targeted interventions to support aspiring homeowners.’