First-time buyers' costs soar over last year

25 January 2020

  • Average UK first-time purchase price up 9% to £231,455, while average deposit increased by 7% to £46,187
  • Despite increasing costs, overall number of first-time buyers remains stable
  • Just 10 areas have become more affordable for first-time buyers over past decade

The cost challenge facing first-time buyers increased significantly over the last year, with growth in average purchase prices and deposits up sharply, according to the latest research by Halifax.

Average purchase price

The average price paid by a first-time buyer in the UK last year was £231,455, up by £18,252 (9%) from a year earlier (£213,203). London saw the biggest monetary increase in the price paid by first-time buyers over the last 12 months, up by £27,764 (7%).

The greatest percentage growth came in the North West and Yorkshire and Humber, both up by 9% (£13,475 and £13,132 respectively). The smallest increase came in East Anglia, up by just £4,528 (2%).

Average deposit paid

The average amount put down by a first-time buyer in 2019 was £46,187, compared to £43,155 the year before, a rise of 7% (£3,032).

Average deposits for first-time buyers in London were up by just 2% (£2,016), from £107,869 to £109,885. Other areas of the country saw more rapid growth though, with average first-time buyer deposits growing by 13% (£2,828) in the North from £21,263 to £24,091.

East Anglia was the only region to record a fall in the average first-time buyer deposit, down by 4% (£1,640) from £44,828 to £43,188.

Volume of first-time buyers

Despite increasing costs, the overall number of first time buyers in 2019 remained stable, up around 1% from 353,130 in 2018 to 356,767 in 2019. This means that first-time buyers continue to account for more than half of all home purchases.

Northern Ireland saw the biggest increase in the number of first-time buyers in percentage terms, up by 6% year-on-year (10,430 to 11,013).

London remained broadly stable, with numbers up 2% (40,960 to 41,712). The South West was the only region to record a fall, down 4% (29,430 to 28,378).

Whilst price growth in the overall housing market has been modest in recent years, the level of inflation facing first-time buyers is greater, which compounds the challenge in raising bigger deposits. However, given their importance to the market as a whole, it’s reassuring that the overall number of new buyers getting on the ladder remains stable.

This is in part explained by initiatives designed specifically to support this key group, including Help to Buy schemes and family support mortgages, and they also benefit from the continued period of record low interest rates. However, it’s clear that more needs to be done to address more fundamental long-term issues, not least the shortage of new, affordable homes being built.

Russell Galley, Managing Director, Halifax

Affordability for first-time buyers

Burnley in the North West is now the most affordable area for local first-time buyers – calculated by comparing average earnings to average house prices – with a ratio of 3.1. This replaces East Ayrshire in Scotland.

The vast majority of the top 10 most affordable areas are in Scotland and Wales (examples include North Ayrshire at 3.3 and Merthyr Tydfil at 3.4), with only Pendle in the North West (3.6) also making the table.

The list of least affordable areas in the country is unsurprisingly dominated by London, with Hackney recording a house price to earnings ratio of 12.1, followed by Brent (11.6) and Lambeth (11.1). Oxford (10.3) in the South East, is the only place outside London to make the top 10.

A decade of change

The previous decade witnessed some big shifts in the first-time buyer market. The volume of transactions surged by around 84% over the last 10 years, from 193,940 in 2009 to 356,767 in 2019. Over this time, it grew from 39% to 51% of all home purchases.

Northern Ireland has seen the biggest growth since 2009 in percentage terms, up by 151% (4,380 to 11,013). London actually recorded the slowest growth, up by just 43% over the decade (29,250 to 41,712).

The explanation for these figures may lie in average price changes over the same period. The average first-time buyer price in London has shot up by 104% (£231,278) over the last 10 years, from £222,107 to £453,385.

Northern Ireland meanwhile has seen the lowest growth, up just 12% (£14,151) from £122,699 to £136,850. This compares to a national average of 67% (£92,822) growth – from £138,633 to £231,455 – for first-time buyers.

It’s a similar story with deposits, as the average amount needed by a first-time buyer in London leapt by 41% (£31,908) from £77,977 to £109,885 – while in Northern Ireland, it actually fell by 26% (£9,039) from £34,356 to £25,317. The national average first-time buyer deposit over this time grew by 19% (£7,827) from £38,900 to £46,187.

Affordability over the last decade

Using the affordability measure to track changes, just 10 areas across the UK have become more affordable for first-time buyers over the last decade, although there are some surprising results.

Kensington and Chelsea has remarkably recorded the biggest improvement in the house price to earnings ratio since 2009, falling from 10.9 to 6.2, or 43%.

However, with a whopping average first-time buyer price of £693,905 in 2019, up from £480,454 in 2009, it’s clear this actually reflects a rapid growth in average earnings in the area over the last decade (£44,014 in 2009 to £111,063 in 2019) rather than any significant improvement in affordability. This is an area that remains firmly out of reach for all but the wealthiest first-time buyers.

Eden in the North West is next on the list, where the average price to earnings ratio fell by 27% over the last decade, from 7.3 to 5.3. Middlesbrough, Newry, Mourne and Down, Inverclyde, North Ayrshire, Ceredigion, Blaenau Gwent, Merthyr Tydfil and Burnley are the only other areas in the whole of the UK to have recorded at least a modest improvement in affordability.