London is at the epicentre of the first-time buyer crisis facing the UK, according to a new report from the Building Societies Association (BSA).
A first-time buyer today would need a deposit of £144,000 and an income of £96,000 to get on the London ladder, they estimated.
Only couples with dual incomes and financial help from their families can hope to buy a home, leaving single people without access to generational wealth stuck renting.
Affordability is the biggest barrier to home ownership, reports the BSA, both saving for a deposit and being able to afford a mortgage after the interest rate rises.
“A typical first-time buyer in London now needs a deposit of around £144,000.”
“The recent rise in mortgage rates from the historic lows in the years following the financial crisis has hit the more expensive regions in the south of England hardest and a typical first-time buyer in London now needs a deposit of around £144,000,” said Paul Broadhead, BSA’s mortgage and housing expert.
“It’s no surprise therefore that in the final quarter of 2023, the average income for a successful first-time buyer in London of £96,000 is significantly higher than the UK average of £60,000,” he added.
There are two million fewer owner-occupier mortgages today compared to the peak in 2002, reported the BSA, returning to levels last seen in the late 1980s.If younger people are unable to get on the housing ladder, it will negatively affect the entire market, warned the financial institutions.
“Becoming a first-time buyer is probably the most expensive it’s been since the 1950’s. As we know, for the housing market to function properly, we need those first-time buyers to be able to afford their first home,” said Broadhead.
If people cannot get on the ladder and pay down a mortgage over their working life, they will end up renting until retirement and be vulnerable to rising housing costs.
“Comparisons across generations raise questions about long-held assumptions such as whether the housing ladder still exists,” said Neal Hudson, a property analyst who authored the BSA report.The report cautioned there was no “silver bullet” to the first-time buyer housing crisis, but called on the government to enact radical change to help mortgage lenders assist more first-time buyers.
“Becoming a first-time buyer is probably the most expensive it’s been since the 1950’s.”
An independent review into the first-time buyer market should be commissioned, said the BSA, and the delivery of new homes prioritised.
The private rental sector should also be improved, stated the report, as its quality and affordability has an impact on prospective first-time buyers who are renting as they try to save for a deposit. Private rents in London have risen by 11 per cent in the last year, according to the Office for National Statistics (ONS).
Property tax reforms, particularly those that favour first-time buyers, should also be considered by the government said the BSA.
The BSA also called for regulatory changes to make it easier for first-time buyers to get a 95 per cent loan-to-value (LTV) mortgage by lifting the 15 per cent cap on lending above 4.5 times incomes.
“While the risk of negative equity still exists, the impact it has should be less than seen previously,” wrote Hudson. “Despite this, it may be worth considering mortgage products that allow households to move home if trapped by negative equity.”Lenders should also be allowed to offer different types of mortgages to people on lower incomes, and to people mortgaged into their retirement, said the BSA.
“For too long those without the so called ‘Bank of Mum and Dad’ or who are on single or lower than average incomes, have been excluded from home ownership and are stuck in the private rented sector,” said Broadhead.
“We are calling on Government to commit to making homes more affordable, more available, and more appropriate to the needs of the people living in them.”
