How much could Generation Buy save first-time buyers?

While the finer details are yet to be revealed around last week’s Government announcement of a tax-payer backed 5% deposit mortgage for first-time buyers, research by estate agent comparison site, GetAgent.co.uk, has revealed that it could save the average first-time homebuyer (FTB) as much as £17,981.

Currently, FTBs are forced to get on the ladder with larger deposits due to a lender’s affordability criteria which is often limited at no more than four to four and a half times their yearly income. As a result, across Britain the average FTB currently puts down a deposit of 14%.

Should the latest offering by the Government relax rules around lending affordability criteria as is widely expected, a 5% option would not only reduce this requirement by 9% but it would lower the initial financial barrier for FTBs by £17,981.

In London, the average FTB stumps up the largest deposit of all regions at 26%. A 21% reduction to 5% would see the sum paid by London’s first-time homebuyers reduce by a huge £88,529.

The North East is home to the lowest saving between the current 14% average FTB deposit and a 5% option. Even still, a 9% percentage reduction would see FTBs in the North East pay £10,204 less to get on the ladder.

London is home to most of the current largest average FTB mortgage deposits and therefore the largest percentage reductions for those opting for a 5% deposit mortgage.

In the City of London, the average deposit paid is currently as high as 44%, falling to 37% in Hammersmith and Fulham, 35% in Westminster and 32% in Brent and Hackney. 

West Devon is the highest outside of London, with FTBs currently putting down an average deposit of 35% for their first home.

When it comes to the biggest monetary saving between the current average FTB mortgage deposit paid and a 5% option, the City of London would see a decrease of £354,659. Kensington and Chelsea would see the next largest reduction at £249,083, along with Westminster (£243,535), Hammersmith and Fulham (£215,497) and Camden (£175,223).

Outside of London, Cambridge would see the largest reduction in the average FTB deposit cost at £88,508. Brentwood would see the second-largest decrease with a drop of £77,055 between the current average paid and the cost of a 5% deposit.

Elmbridge (£76,701), Mole Valley (£76,050) and Oxford (£75,350) would also see some of the biggest savings for FTBs based on the current average paid and the cost of a 5% deposit.  

Founder and CEO of GetAgent.co.uk, Colby Short, commented:

“The hard task of getting that first foot on the property ladder is pretty clear when you look at the current average deposit paid by first-time buyers and what this equates to in pounds and pence.

The availability of a 5% option would present a considerable upfront saving regardless of where you’re looking to buy and would certainly make the initial financial obstacle of a mortgage deposit easier to overcome.

Of course, it does also require first-time buyers to borrow a larger sum which will inevitably cost them more in interest further down the line.

We also need to wait for the small print that will no doubt accompany the Government’s latest proposition and any restrictions there might be in terms of price thresholds, earning considerations and locations. However, on the face of it, it should provide a very welcome boost for first-time buyers.

We’ve seen the huge impact the current stamp duty holiday has had on buyer demand and we will no doubt see a similar uplift should a 5% first-time buyer mortgage hit the market. The downside, however, is that this heightened demand will push up property values to the detriment of those it is trying to help in the first place.”