The Covid-19 pandemic has created a perfect storm for first-time buyers, with restricted mortgage availability and soaring house prices contributing to making getting on the property ladder more of a struggle than ever.
This week, several of the UK's major mortgage lenders announced that they will be reintroducing 90-per-cent mortgage loans, but the terms of these mortgage deal are not as favourable as they were pre-pandemic, with mortgage rates on high-LTV mortgages having doubled since March.
Moreover, the reintroduction of low-deposit mortgage has not meant that they are equally available to all applicants, with some restricted to specific postcodes, and others available only to select applicants who meet stringent affordability criteria. in other words, the return of the low-deposit mortgage will benefit a small minority of first-time buyers, with a huge number of people still being limited in their options.
Recent research by the Mortgage Advice Bureau shows that a significant proportion of first-time buyers have opted to put down a significantly larger deposit on their first home following the pandemic, no doubt in a bid to secure a decent mortgage rate on the home of their dreams. In October, over a third (36 per cent) of first time buyers (FTBs) were committing deposits up to 20 per cent, while a quarter (25 per cent) were able to put down a hefty 30 per cent deposit or above. Compared to the beginning of the year (January), only 18 per cent of FTBs were putting down 30 per cent deposits or above.
Generally, first-time buyers would need a deposit of anywhere between 5% and 20% of the property purchase price - with 10% being the figure that most first time buyers normally aim for. Data from MAB shows that in January 2020, most FTBs were meeting this, with 26 per cent putting down deposits up to 10 per cent of the value of the property. In October, just 5 per cent of first time buyers put down a deposit up to 10 per cent.
However, given that the coronavirus lockdown has kept the country at home and prevented people from spending, for those fortunate enough to have been able to save, it is understandable that some are able to put down bigger deposits than before. The Office for National Statistics (ONS) disclosed that the UK household savings ratio during April to June - the height of the COVID-19 lockdown - surged to 29.1 per cent. Brian Murphy, head of lending at Mortgage Advice Bureau offers tips for first time buyers looking to save for deposits in challenging conditions:
- Consider government equity schemes such as Help to Buy: they may not be for everyone, but they still offer the opportunity to become a home owner with a small deposit
- Save little and often – Although it might seem obvious, making steps to save little and often can contribute to a deposit. You do not have to save huge chunks of money. It can be as simple as buying one less take-out coffee a week or going for a less expensive option when at the supermarket. Some banks also provide the option of ‘round-ups’ meaning if, for example, you spend £2.83 on an item, the account will ‘round-up’ the transaction and put aside 17p in a separate pot. Slowly and steadily, the savings pot grows without you even thinking about it.
- Open a Lifetime ISA: you can pay up to £4,000 each year into your account and receive a 25-per-cent bonus (£1,000 maximum) from the government.