What does it take to become a first time buyer today?

It seems with every passing year the homeownership aspiration shared by so many young Britons becomes an even more distant dream.

Surging house prices, soaring inflation and low savings rates mean that the goal posts are constantly moving.

The typical UK home has risen by 68 per cent over the past 10 years, according to ONS data, whereas average wages have only grown by 31 per cent during that time.

The average first time buyer attempting to get on the property ladder with a 20 per cent deposit requires £44,318 today compared to £27,530 needed ten years ago, according to Nationwide Building Society.

The average annual full-time UK salary is now £31,980, according to ONS figures, compared to an average national house price of £289,099, based on Halifax’s house price index.

That means average house prices are more than nine times more expensive than average earnings. The last time the gap between earnings and house prices was that high was more than 140 years ago, according to research by the asset manager, Shroders.

Back in 1995, two-thirds of people aged between 25 and 34 owned a property, according to the Institute of Public Policy Research.

It is therefore perhaps not surprising that today, that figure, has fallen to a quarter.

What does 2022 have in store for first-time buyers?

Last year, it looked like things couldn’t get any worse for prospective first-time buyers. House prices enjoyed double digit growth whilst savings rates hit rock bottom.

But the situation is becoming worse. The cost of living crisis has arrived to further decimate the morale of aspiring homeowners.

Households’ weekly savings are expected to fall as Britons take-home pay fails to keep pace with rising inflation, according to data from Scottish Friendly and the Centre for Economics and Business Research.

Inflation is at 9.1 per cent and expected to peak at around 11 per cent this year according to the Bank of England. But house prices have continued to rise, with the ONS’ most recent report putting property inflation at 12.4 per cent.

To make matters worse, average rents have increased by 11 per cent in the past 12 months, according to Zoopla.

As a result, there are now 100,000 more adults under 35 living back with their parents than there were before the pandemic, according to the Institute for Public Policy Research.

However, despite all the financial barriers, homeownership remains a dream to which most young Britons continue to aspire to.

Last year, there were a total of 408,379 mortgaged first-time buyers, according to analysis by Yorkshire Building Society, up from 300,307 in 2020 and the highest level seen since 2006.

Many will see it as a chance to put the years of renting behind them – a home to call their own providing them with a sense of security they have been thus far denied.

Others will regard it as a sound investment. Property prices tend to rise over the long run and for most paying off a mortgage makes more sense than paying a landlord rent, so that they can profit.

This is Money spoke to four first time buyers about their experiences to find out what it takes to get on the housing ladder.

How are you saving for a deposit?

There have been many government interventions attempting to help young buyers in recent years to overcome this very issue.

However, there is no denying that the biggest factor helping many first time-buyers onto the property ladder is the bank of mum and dad.

In fact, the Bank of Mum and Dad is predicted to lend a record-beating £10 billion to their children this year, according to research by Savills, with the average contribution hitting £58,000.

David Wall, a 37 year old marketing manager based in Manchester is one such aspiring homeowner receiving the much needed parental assistance.

Over the years, David’s mum has been gifting sums of money which now total roughly £50,000 in order to help him get onto the property ladder.

‘My mum was a single parent and always wanted me to put roots down eventually,’ says David. ‘Gifting money and helping me along the way has always been a conversation between Mum and I.

‘She’s now retired aged 64 and sold her business recently which means I actually have a 10-15 per cent deposit saved rather than just 5 per cent.’

However, despite this support, it has also taken years of hard grafting from David to have got himself into a situation where he can afford both the type of property and the area he wants to live in.

To help him save more effectively, he works as a part time fitness instructor on top of his main job.

He says: ‘The money I have earned from being a fitness instructor has propped up my savings and house deposit. It has meant that I could save a good £200 to 300 each month.

‘I also sold my car when I moved into the city centre. I now use public transport and car clubs whenever I need to travel. It has turned out to be a real money saver.

However, not everyone has a family member that can step in and help in this way.

Jake Norman, a 21 year old, working in London says that he and his girlfriend always wanted to make it on their own, regardless of whether their parents were able to help or not.

He said: ‘If my family could and had money to spare, they’d love to contribute but it’s a sense of independence for us as a couple to try and do this completely on our own as much as possible.

Jake initially started to save during his second year of university in 2019 to ensure he and his girlfriend could live together after leaving.

However it wasn’t until he saw a warning that the Help to Buy Isa was ending, that he felt encouraged to save more actively.

Although the Help to Buy Isa has now ended, and was replaced by the Lifetime Isa, previously it allowed aspiring first-time buyers to pay in up to £200 each month.

The government would then top up their savings by 25 per cent – up to a maximum of £3,000 each tax year – when they purchased their first home.

‘I started saving when I was 19,’ says Jake, ‘I’m so glad I started when I did as it got me into a good habit and made sure I kept this up without ever really feeling I wasn’t able to spend freely or enjoy myself while at university.

‘I was also working whenever I went home. Mainly just manual labour and stuff like that. And then when I was at university, I worked in a couple of cafes. So I was always working, so that I could save.

‘Me and my girlfriend both used the Help to Buy Isa and set up a direct debit every month. This meant we received an extra 25 per cent added on by the government for everything we saved.’

Once he finished university, Jake got a full-time job and has been supplementing his savings ever since. He and his girlfriend also decided to live at his parents home to save on rent as a short term solution.

Together they have saved a deposit worth around £30,000 using their combined income. They are looking to borrow £215,000 on top in order to buy a home worth £245,000.

Jake reckons they’re now just three months away from having enough saved for his deposit.

He adds: ‘I am desperate to buy because I still live with my family. It’s basically me, my girlfriend and my dog all together in one room. As you can imagine it’s a bit cramped.’

Lucia Harrison, a 27 year old accountant living in Bristol didn’t realistically think she would ever be able to own a home until Covid-19 struck the world.

‘Buying a home wasn’t really something on my radar until the pandemic hit,’ she says. ‘I’ve always thought I’d never be able to own a house. I just believed it’s just too difficult and that it’s too expensive.’

‘But once the pandemic hit, I started saving more and more of my income because I wasn’t able to spend the money due to the lockdowns.

‘I started saving and once my pot went over £1,000, I was like, okay, I can work with this. I started to believe that perhaps one day I could use it towards a house deposit.’

Lucia researched where would be the best place to stash her savings and discovered the Lifetime Isa (Lisa). Those saving for a deposit can open a lifetime Isa if they are aged between 18 and 40.

They can put in up to £4,000 a year and the Government will add a 25 per cent bonus to their savings, up to a maximum of £1,000 per year.

A Lifetime Isa can be used towards a first home if the property costs £450,000 or less, the home is purchased at least 12 months after they make their first payment into the Lisa and they are buying with a mortgage.

‘When I found that the government would add 25 per cent for everything I saved each tax year and that I could use it to buy a house it was an easy decision,’ says Lucia.

‘The caveat was that it had to be open for 12 months, before you could use it towards a deposit.

‘I knew I wasn’t realistically going to buy a place within a year, so I thought let me just open it with £1 so I have it available and then from there I gradually grew into it.’

Lucia opened a cash Lisa with Moneybox and currently holds all of her savings and investments with the savings and investment app. It has a cash Lifetime Isa that can be opened with £1. It pays 0.85 per cent but that drops to 0.25 per cent after a year. Alternatively, people can invest their money from a Lifetime Isa there.

Since the start of the pandemic, Lucia has managed to save £10,000 into her cash Lisa, including the £2,000 government bonus and she also has £7,000 held within a stocks and shares Isa.

‘I used the round-up function on my bank transactions,’ says Lucia, ‘I also have a set fixed figure for weekly deposits.

‘The money would just come out of my account and I viewed my saving as just like an extra bill that I needed to pay.’

Lucia is not alone in using the Lisa as her savings vehicle on the road towards homeownership.

50,800 people made withdrawals from their Lisa to purchase a home in 2021/22, according to HMRC figures. This is a 15,000 increase on the previous year. The average withdrawal was £13,192 – a £700 increase on the previous year.

Michael Brooks, 30, a web developer from Devon also opened up a Lisa account to take advantage of the government bonus.

‘I opened up a general saving one rather than investment one, because I found that I didn’t think I was going to be saving for long,’ says Michael.

‘And the general advice is that if you’re investing, you have to be in it for at least some five to 10 years.

‘From the moment we paid off our debts, I got in the mindset that I wanted to get a house as soon as I could. So using a cash Lisa made sense. Over the course of two years we managed to save £16,000.’

How hard has the path to homeownership been?

Whilst Jake and Lucia are close to accomplishing their property buying dreams after only a couple of years of intense savings and hard work, for many first time-buyers, the process can take many more years of struggle.

The average age of a first time buyer has risen from 30 to 33 between 2012 and now, according to Nationwide.

Michael and his wife have finally purchased their first home having been renting for years

Michael wishes he had started planning his finances much earlier in life not least because he knows he is likely facing a very challenging period given the rising costs of living.

‘We’ve been saving for about two or three years,’ says Michael, ‘prior to that we were trying to pay down a lot of debt we had built up on credit cards and personal loans.

‘We ended up being close to £20,000 in credit card debt, which was quite stressful at the time.

‘This meant we spent a good five or six years focused towards paying down that debt.’

The property that Michael and his wife bought last month cost £320,000 and they had to find a last minute £6,000 to afford the deposit. With house prices continuing to rise at an alarming rate, they made the decision to sell their car for £5,000 to bridge the shortfall.

‘I couldn’t get a mortgage and lost my Right to Buy hopes’

For David Wall, the road to homeownership has been equally paved with frustration. Until recently he had almost become resigned to the idea of never owning his own home

While David is now starting to register for estate agents, waiting lists and starting to view listed properties, he’s made a couple of attempts to achieve homeownership in the past.

In 2011, David applied for the Right-to-Buy scheme when living in Birmingham.

Right to Buy is a Government scheme that lets council tenants buy their home at a substantial discount of between 35 and 70 per cent of a property’s value. This is now being extended to all housing association tenants.

After renting the property for five years, David started the process to buy it.

However, during the survey and valuation process it became apparent there were some structural issues, and the renovations required would have cost him far more than what the property was worth.

‘I was devastated,’ says David, ‘I couldn’t get a mortgage to help me secure the property and the housing association agreement was trying to keep me tied to it. In the end I had to make the tough decision to walk away from it altogether.

‘It really put me off the idea of homeownership for a long time – I became resigned to the idea that I was never going to own my own home.’

Are you afraid of rising house prices?

Rising house prices don’t just move the goal posts for those struggling to put together a deposit, they also shift the goal posts for those struggling to afford a mortgage.

Whilst there is now a greater choice of low deposit mortgages helping those who are struggling to save enough for a deposit, these 95 per cent mortgages make little difference for those unable to stretch to the mortgage amount required.

Under current guidelines established by the Financial Policy Committee in 2014, lenders impose an average 4.5 times loan-to-income limit on borrowers.

Lenders can go higher than this but if you look at this as a benchmark for sensible borrowing it can make it tough to get a mortgage alone.

Someone buying alone with a typical salary of £30,000 a year could expect to borrow no more than £135,000.

That may be enough in some areas of the country, but in many places, it won’t be sufficient.

David is mindful of finding the right balance between getting on the ladder as soon as possible and finding the right home that he really wants to call his own.

‘There is always that worry in the back of my mind of being left behind,’ he says.

‘I often think back on some previous properties I might have purchased. There was a property I almost purchased with my ex a few years ago.

‘It cost £180k to buy at the time – it was a nice three bed in Manchester. The same property now goes for £430k. It’s a battle between getting your skates on and finding the right property.’

Jake says for him and his girlfriend the main concern is not so much rising house prices but beating other buyers to homes.

He says: ‘At the moment, the main concern with the housing market is just how competitive it is.

‘I know people who have put multiple offers on different houses around the guide price and just been turned down.’

Lucia shares a similar concern given that she has already lost out on a couple of properties to higher bids.

‘Buying in Bristol seems to be really competitive at the moment. I have put put in a couple of offers but so far both have been gazumped by other buyers.’

Rather than being afraid of rising house prices, Lucia is worries that property prices may fall. 

Lucia says: ‘Everyone I speak to seem to think that over the next four or five months, once inflation has kicked in for enough people, house prices will fall and the bubble will burst. 

‘Obviously those are just opinions and no one knows what’s really going to happen. But I am a little nervous that I’ll buy and then immediately have negative equity.’

Lucia’s concerns will be shared by many. Although house prices have surged over the past two years, there are signs that the cost of living crisis and affordability constraints may be halting house price growth.

In June, Rightmove recorded growth of only 0.3 per cent month-on-month, the smallest increase since January. 

Britain’s largest property portal has predicted some month-on-month price falls during the second half of the year. 

It expects this to bring house price growth by the end of the year to around the 5 per cent it originally predicted in December. 

What about rising mortgage rates?

The price of mortgages has been rising since last year, when they reached record lows with some deals priced at below 1 per cent.

The average two-year fixed rate mortgage has risen by almost 1 per cent since December 2021, according to Moneyfacts.

The cheapest typical two-year deal has climbed by 0.35 percentage points over the past month alone, and now has a rate of 2.71 per cent, according to L&C Mortgages, having risen from the historic low of 0.89 per cent last October.

This can make for grim reading for many first time buyers.

Jake says he’s not overly concerned by the fact that mortgages are becoming more expensive. He’s confident he’ll find ways to make extra money if push comes to shove.

‘At this stage, we’re just focusing on getting a house,’ he says, ‘we both work full time and in jobs that we both really enjoy.

‘We’re not too worried about the cost of everything going up at the moment. If I have to pick up an extra job here or there, I don’t mind that. I will face that problem when it comes.’

Lucia is planning on putting down a 15 per cent deposit to try and secure a better deal than she might otherwise get were she to buy with just a 10 per cent deposit.

She also wants to rent out a room to a lodger, which will help with the mortgage repayments.

At present, homeowners can earn up to £7,500 each year tax-free by renting out a room within their home under The Rent a Room Scheme.

‘I hope to use the bigger deposit to secure a better mortgage rate meaning I’ll have smaller repayments,’ says Lucia, ‘also it’ll mean I’m borrowing less, so I’m not too worried in that respect.

‘My plan is to buy a two or three bed property. And as soon as I buy it, I’m going to rent out a room to someone and as the rental market in Bristol itself is so competitive – properties are receiving multiple bids.

‘Given that fact, I won’t have a problem finding a lodger as long as I buy in a good area, the person paying the rent would realistically pay off the mortgage every month. So if anything I’ll be saving even more money if I was at my house.’

Michael, who has just bought his first home luckily managed to lock in a rate below 2 per cent.

He decided he did not want to risk being stung in two years time by further interest rate rises and therefore decided to fix the interest rate for five years.

‘We bought at the start of March,’ says Michael, ‘our first mortgage attempt was canceled as the interest went up on the deal we were going for.

‘We ended up opting for a five year fixed rate deal charging 1.9 per cent. We are just really pleased we managed to buy when we did given that mortgage rates are rising.’

What’s your advice to other first-time buyers?

Lucia’s first tip to any first time buyer would be to consider opening a Lifetime Isa. She says: ‘You can open an account with just £1 and as long as you don’t intend to buy in less than a year from now, you’ll have the option of using that free government £1,000 on top of the £4,000 you put in each tax year.

‘Also if you’re buying a couple you can each use your own Lisa towards the house purchase. If for example, one one person in the couple earns more money than the other person they could pay into each other’s respective accounts so that you max out each other’s maximum allowances.’

Lucia’s second piece of advice is not one you may have heard before. It speaks volumes for the type of tenacity she feels a first time buyer requires these days.

She says: ‘If you’re struggling to find a mortgage because of the salary you are on, then look around the jobs market because at the moment there are vacancies everywhere.

‘It’s also much easier to increase your salary by moving companies than it is from looking within.

‘For example, I recently interviewed at another company and I got the job and just like that I’ve increased my salary by £7,000.

‘I’m using the Nationwide Helping Hand mortgage which will allow me to borrow up to 5.5 times my salary. This means a £7,000 pay rise will effectively enable me to borrow £38,500 more than before. That’s the difference between one area of Bristol to another.

‘When you’re trying to get to a certain financial goal like homeownership, there’s only two options when it comes down to achieving it. You either increase your income or you reduce your expenses.

‘In the case of buying a house, there’s only so much you can reduce your expenses by until you need to increase your income.

‘So if you’re not happy with your current salary just move to another place or if you want to stay, use it as a way to counter and don’t be afraid to negotiate, even if it is for just £1,000 or £2,000 extra.’

Jake believes starting early and having a budgeting plan to stick to is vital.

‘I’d always recommend to anyone else trying to get on the ladder to save as early as possible,’ says Jake.

‘It’s about constantly having that goal of owning your own home in the back of your head. It’s not necessarily about cutting back on anything. It’s just taking everything in moderation and trying to hit the goals you set.

‘I set some clear goals – to put away £200 a month in the Help to Buy Isa every month which is the maximum I could put in and then also aimed to save between £100 and £200 a month in a separate account as well.

‘It requires doing whatever you need to hit those targets. Some month’s that might be easier than others. Some months you’ll have to cut back on your spending and go out less.’

Michael warns all first-time buyers to be fully prepared for the mortgage application.

He found that waiting for a mortgage offer can be a lengthy experience as he went back and forth with the lender over questions and documents.

Having all your documentation ready in advance could save time and make the process less painful.

Michael said: ‘I think the most stressful part about buying a home is securing the mortgage. It took ages – about six weeks in total from the application being submitted to the offer to come through.

‘There was lots of back and forth with the lender. They kept on asking for more documents.

‘They also asked about a few references on our bank statement that they wanted to double check. For example, they saw I had sent my wife some money to repay a credit card with the reference titled ‘pay debts.’

‘So make sure you are careful of how you reference payments as it may be double checked by the lender and slow your entire application down.’

David, who has endured a couple of disappointments on his road towards homeownership advises aspiring homeowners to be pragmatic.

‘If it’s too good to be true it probably is, says David, ‘always get a survey as you never know what horrors might be hiding under the floorboards or behind the cupboards.

‘And do your homework. If you know anyone who has flipped houses or is in property development it would be worth chatting to them.

‘I think I’ve become a lot more pragmatic, the more experiences that I’ve had with almost buying poorly built properties.

‘The two properties I’ve almost bought previously both had the glitz and glamour, but as my mum would say – they were all fur coat and no knickers.

‘When I come to buy next year, I’ll be looking at the building regulations and the warranty, the plumbing, and foundation work, and what’s behind the kitchen cupboards.

‘That kind of stuff will come back to bite you if you don’t check. You don’t want to be spending money on fixing these things after paying so much for the property in the first place.’