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Housing Deposits Increase Tenfold in Twenty Years as Household Income Only Doubles

20 Sep 2011

New research from first direct shows the increasingly difficult task house buyers face in affording a house and a deposit, with rises in the cost of these far outstripping rises in income. 

The research found that since 1990, the average housing deposit has risen from £6,793 to an average of £66,7221 in 2011. A combination of an increase in house prices and a reduction in the amount of mortgage lending in the market means that house buyers face an almost tenfold increase (9.8 times) in the required deposit on a property. House prices have also risen in the same period by a factor of 4.42. With the average household income having risen by just 2.53 times in the same period, buyers must now save for far longer to achieve this milestone purchase. 

The research also found that the past eighteen months have been the worst to buy a house in the past twenty years with the average house price 5.1 times the average household income, and the average deposit running at 1.7 times the average income. The most affordable year was 1992, with the house price ratio at a low 3.4 and the deposit ratio also the lowest it has been at 0.4 times the average household income. 

Effect of Recession on Property Affordability

The past two decades have endured two recessions - the early 90s recession which lasted from Q3 1990 to Q2 1992 and the late 2000s recession which officially ran from Q3 2008 to Q4 2009. In the first recession, household income rose albeit modestly and the average deposit required dropped and stayed low for most of the 1990s as did inflation - good news for first time buyers (see Fig 2). 

However, the more recent recession has been less kind both to existing homeowners and especially to first time buyers. Between 2008 and 2009, average household income dropped by £1,688. While house prices also dropped by £27,837, a negative development for existing homeowners, the average required deposit rose by over £10,000 in one year alone, hitting first time buyers particularly hard. Despite house prices recovering somewhat, to date the average housing deposit has risen by £23,249 since 2007 heaping misery on FTBs, whose average age has risen to 374

Indeed, the average LTV in 1990 was 88%, rising to 90% in the mid 90s and now at its lowest ever at 73%1

Directly comparing the two recessions, the 2000s downturn was tougher on house buyers than the one which took place in the early 1990s. The house price to income ratio was much higher in 2010 than in 1992 (5.1 compared with 3.4), and the deposit to income ratio was also far higher in 2010 (1.7) compared with 2002 (0.4). 

Bruno Genovese, Senior Savings Product Manager at first direct said, 

"Much has been made of rising house prices, but the average deposit needed in the first place has actually risen more than twice as fast as house prices and almost four times as fast as income. This is why we are seeing first time buyers getting older, with more and more people struggling to get on the property ladder. 

"In this climate, it really is important that people save as much as they can to raise the money for a deposit. Longer term savings accounts offer a better return and remove the temptation to dip into the funds so these are a good option for people determined to save."

 

ENDS 

 

For further information contact Rebecca Hirst on 0113 276 6899, rebecca.hirst@firstdirect.com or

Suman Hughes / Hugh Murphy at The Wriglesworth Consultancy on 020 7427 1400 s.hughes@wriglesworth.com / h.murphy@wriglesworth.com

 

Notes to editors 

1 Calculated using average Percent Advance from 'CML All Loans for House Purchase - Lending and Affordability'

2 Average house prices from Communities.gov.uk - Housing market: simple average house prices, by new/other dwellings, type of buyer and standard statistical region, from 1990 (quarterly)

3 Average Household Income from 'CML All Loans for House Purchase - Lending and Affordability'

4 CML Data - Average age of unassisted first time buyer - First time buyers: are they really getting older? 

first direct 's Regular Savings Account currently offers 8% AER fixed for 12 months. 

For full details of first direct 's savings rates please visit http://www2.firstdirect.com/1/2/savings.

 

Fig 1 Income to house price and deposit ratios Q1 1990-2011

 Available on request. 

Fig 2 Average Household Income, House Price, LTV and Deposit, Q1 1990-2011

Year

Average Household Income

Average House Price

Average Deposit Amount

Average LTV (%)

1990

£16,070

£56,610

£6,793

88

1991

£17,681

£60,625

£9,094

85

1992

£18,000

£61,124

£6,724

89

1993

£17,800

£63,346

£7,226

88

1994

£18,000

£64,716

£6,823

89

1995

£18,303

£65,627

£6,233

90

1996

£19,307

£68,192

£6,577

90

1997

£20,774

£74,200

£8,003

89

1998

£21,925

£81,722

£9,302

88

1999

£22,983

£89,537

£10,934

87

2000

£24,877

£103,268

£14,578

85

2001

£25,932

£111,303

£17,109

84

2002

£27,087

£120,876

£18,159

84

2003

£29,700

£149,119

£32,091

76

2004

£32,127

£161,601

£43,921

74

2005

£33,875

£181,100

£48,150

74

2006

£37,920

£184,852

£38,684

80

2007

£40,000

£205,577

£43,473

80

2008

£41,000

£218,521

£45,425

80

2009

£39,312

£190,684

£56,414

74

2010

£40,525

£205,690

£68,416

73

2011

£40,252

£205,075

£66,722

73

 

Fig 3 House Price and Deposit to Income Ratios

Year

House Price to Income Ratio

Deposit to Income Ratio

1990

3.5

0.4

1991

3.4

0.5

1992

3.4

0.4

1993

3.6

0.4

1994

3.6

0.4

1995

3.6

0.3

1996

3.5

0.3

1997

3.6

0.4

1998

3.7

0.4

1999

3.9

0.5

2000

4.2

0.6

2001

4.3

0.7

2002

4.5

0.7

2003

5.0

1.1

2004

5.0

1.4

2005

5.3

1.4

2006

4.9

1.0

2007

5.1

1.1

2008

5.3

1.1

2009

4.9

1.4

2010

5.1

1.7

2011

5.1

1.7

 

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