First-Time Buyers Need £10k More for Deposit After Covid

First-time buyers put down an average of deposit of £57,278 last year, £10,829 and 23% more than in 2019, according to research from Halifax.

Soaring house prices and tighter mortgage restrictions during the pandemic contributed to the elevated costs for first-time buyers. And for many, they put homeownership increasingly out of each.

Banks withdrew nearly all 90% LTV mortgages from the market for months between the summer and autumn, over concerns that buyers would struggle to afford mortgage payments and a crash in housing prices would leave them in negative equity. The reduction in offerings forced buyers to raise more money to qualify for mortgages with lower loan-to-value (LTV) ratios.

Meanwhile, the stamp duty holiday, announced in July and running until 31 March, has fuelled a dramatic rise in property prices—perhaps before an inevitable crash, some market watchers warn.

First-time buyers paid, on average, £256,057 for a home last year, up from £233,118 in 2019. In London, the prices paid by first-time buyers climbed by £33,486 to £489,098.

Overall, the number of first-time buyers fell by 13% year-on-year, following a freeze in the housing market during the spring lockdown. 

But when sales rebounded in the second half of the year, with transactions down just 2% from the same six months of 2019, first-time buyers were amply represented. Across the year, first-time buyers still purchased around half of the homes bought with a mortgage—a similar level to the previous year.

However, there were regional variations. The number of first-time buyers was down 23% in Northern Ireland but slipped just 6% in London.

But Halifax cautioned that lingering effects of the coronavirus crisis, most sharply felt by younger people and those in low-paid jobs, could further restrict first-time buyers' access to the housing market in the future.

Russell Galley, managing director of Halifax, said: “Whilst these figures confirm the almost inevitable fall in the overall number of first-time buyers in 2020—with the entire housing market effectively shuttered during the first national lockdown—they also underline just how strong the bounce back was in the second half of the year.

“Despite the obvious challenges presented by soaring house prices, not least the need to raise an even bigger deposit, first-time buyers still accounted for half of all home purchases, a reassuring statistic given their overall importance to the market.

“However, with the economic impact of the pandemic likely to be felt most keenly by the young and those in lower-paid jobs, the need to prioritise improved housing availability and affordability for all those looking to make that first step onto the property ladder becomes ever greater.”