Only one in eight potential first-time buyers can afford an average starter home

New analysis shows that only one in eight potential first-time home buyers can afford the average starter home in their area.

High house prices, rising living costs, insufficient savings, rising rents and mortgage rates are all making it unaffordable for many young people to buy their own home, according to research by the owner of Skipton Building Society and analysts Oxford Economics.

The research found that nearly four in five potential first-time home buyers do not have enough savings to make the down payment needed to purchase a home in their area.

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

Of these first-time homebuying households, less than one in a hundred can afford to take their first step into the housing market in their region.

But even among those earning more than £71,250 a year (the top 25 per cent of income groups), only 56 per cent cannot afford to buy their first home in their area.

According to the Building Societies Association, the rise in house prices relative to incomes over the past 20 years has seen the average size of deposits rise by around 160 per cent since 2005.

The typical successful first home buyer now needs a deposit of around £60,000, although this ranges from £27,000 in the North East of England to as much as £144,000 in London.

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

According to the HomeLet Rental Index, the average household rent has increased by almost a third since January 2021, from £981 per month to £1,299 per month.

Out of price: Nearly four in five potential first-time buyers don’t have the deposit needed to buy a home in their area, according to Skipton Group

Where are homes the least affordable for starters?

First-time home buyers in the West Midlands face the most difficulty finding a home, according to the research.

The average house there is worth just over £250,000, less than the UK average of around £285,000.

However, Skipton said the combination of low savings levels and rising house prices in the region is making it unaffordable for more and more people to buy their own home.

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

Wales was also seen as one of the least affordable areas for local first-time home buyers, despite the average house price being £216,000.

This is because it is more difficult for people in Wales to get the mortgage they need due to the lower average income.

In contrast, first-time home buyers in Scotland have the best prospects, as house prices for first-time home buyers are lower.

The East of England is also one of the most affordable areas for first-time home buyers, despite the average house price being £337,000.

This is because average household incomes are higher and there are sufficient savings to compensate for the high house prices for first-time buyers.

Inflation puts first home buyers at a disadvantage

Despite recent wage growth and inflation falling to the Bank of England’s 2 percent target, the research finds that affordability remains much the same as it was at the start of 2020, with little sign of improvement in the near future.

According to the Bank of England’s inflation calculator, inflation has risen by more than 20 percent since 2021.

This means people would typically have to pay more than £120 to buy the same groceries they could have bought for £100 in 2021.

As a result, the amount that people can put aside each month as a deposit has decreased.

Stuart Haire, CEO of Skipton Group, said: ‘Having a place to call home is widely recognised as one of the most important issues facing millions of people across the country.

‘For some, our findings paint a bleak picture, especially first-time home buyers.

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