Market Insight - March 2016
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The Long Wait

Focus Economy Sales Lettings Market Indicators


Saving up is hard to do
It’s saving the deposit that takes the time and is the biggest hurdle to ownership.

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There are 2 main components to housing affordability; the initial cost of the deposit and the cost of servicing the mortgage. Since the financial crash, changing economic conditions have had a significant effect on both components. Low interest rates have led to record low mortgage rates making servicing a mortgage easier but stricter bank lending has meant that buyers have had to raise larger deposits. This has become the biggest barrier for many first-time buyers. In the last 10 years alone, average deposit sizes have almost doubled from £15,700 to £29,600.

Hamptons International new Time to Save index shows how long it takes 2 average household types, a couple working full-time and a single first-time buyer, to save up a 15 per cent deposit for the typical first-time buyer home. In England and Wales the average couple would need to save for 3 and a half years from 2015 to raise the deposit. This is unchanged from last year but 15 months longer than in 1999 when the index begins. Single buyers would have to save for 13 and a half years, 4 times as long as a couple and 30 months longer than it was in 1999. However in a sign that affordability has seen a small improvement, they can now save their deposit 9 months faster than in 2014.

Time to Save is predominantly affected by the relationship between earnings and house prices. The growing disparity between earnings and house price growth since the mid-1990s is fundamental to the barriers first-time buyers now face. Since 1997, house prices have grown around 6 per cent annually, twice as fast as earnings. 

So it comes as no surprise that it is in areas where earnings and house prices remained in line where the length of time to save is shortest. The North East, where earnings have risen faster than house prices since the financial crash, has the shortest time to save with couples able to save in 2 years and single buyers saving in 8 years and 9 months.

Here the length of time to save has decreased for both household types since the crash, the only region to do so. London buyers face the longest wait with couples having to save for 8 years and single first-time buyers needing almost 46 years.

Here house prices have grown much faster than earnings and has resulted in the time to save increasing the most since the crash. Long-term, as the rate of house price growth is expected to slow, the length of time it takes to save for a deposit should naturally fall. However, earnings play the crucial role in improving the time to save. We estimate that if house prices grew a per cent slower than currently forecast it would trim off 15 months from the time to save but if earnings grew a per cent faster than forecast it would reduce time to save by 18 months.


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