The government’s mortgage guarantee scheme, launched in April 2021, aimed to ease this journey by enabling first-time buyers and home movers to secure 95% loans. This means that buyers only need to come up with a 5% deposit themselves. But is this scheme really making home ownership more accessible for single buyers on average salaries? Let’s delve into the data and explore the current landscape of the UK housing market.
Intentions vs. Reality
The mortgage guarantee scheme was introduced with the noble intention of transforming “generation rent” into “generation buy”. While the prospect of securing a home loan with just a 5% deposit sounds promising, recent analysis by Rightmove shows a different picture. Many single buyers earning the median UK wage are finding themselves priced out of the market. This barrier persists despite the availability of 95% loan deals, some of which were available even before the scheme’s official launch.
The Current State of Home Affordability
Rightmove’s data paints a stark contrast between different regions in the UK. In the capital, only 2% of suitable entry-level properties are affordable for single first-time buyers with an average London salary and a 5% deposit. On the flip side, the North East presents a more favorable scenario, with 67% of similar properties within reach.
Deciphering the Numbers
For a single first-time buyer, a maximum budget of £164,810 is suggested. This figure is calculated based on a potential loan amount of £156,569 – 4.5 times the average national salary of £34,793 – and a 5% deposit of £8,240.
The Cost of Borrowing
Mortgages with a 95% loan-to-value (LTV) typically come with higher interest rates. For example, the lowest five-year fixed 95% mortgage rate stands at 5.59%, while its 85% LTV counterpart is priced at 4.99%. This difference in interest rates translates to significant variations in monthly repayments.
Renting vs. Owning
While homeownership remains a challenge, renting isn’t getting any easier. Average rents have surged by 10% from last year for new tenants across Great Britain. This increase means that the average rent for smaller homes now constitutes 38% of the average salary, straining the finances of those wishing to transition from renting to buying.
The Benefits of Joint Purchases
The analysis suggests that purchasing with a partner, friend, or family member can dramatically increase the affordability of homes. Two first-time buyers on average salaries could afford 70% of smaller properties across Great Britain, highlighting the significant advantage of dual-income purchasing.
The Future of the Mortgage Guarantee Scheme
Reports suggest that the government is considering extending the mortgage guarantee scheme. Though this extension may benefit a section of potential buyers, Rightmove cautions that the scheme currently aids only a small fraction of the market.
Expert Insights
Tim Bannister of Rightmove emphasizes the need for affordable homes in the right locations to truly make a difference for solo buyers. Matt Smith, a mortgage commentator at Rightmove, reiterates the sentiment, suggesting that while the focus on smaller deposits is appreciated, the reality is that many first-time buyers opt to save for larger deposits to reap affordability benefits.
Regional Affordability Snapshot
Most Affordable Regions for Singles:
- West Dunbartonshire: 93% affordability
- Aberdeen City: 92% affordability
- North Lanarkshire: 91% affordability
Least Affordable Regions for Singles:
- Westminster: 0.1% affordability
- Islington: 0.2% affordability
- Camden: 0.3% affordability
In Summary
The vision of widespread homeownership for single earners on average wages remains distant under current conditions. While joint buyers fare better, the high cost of borrowing and rising rents continue to challenge the transition from renting to buying. The government’s forthcoming decisions on the mortgage guarantee scheme and other housing market interventions will be closely watched for their potential impact on this pressing issue.