Not putting aside enough money for a deposit is the biggest problem first-time buyers face, as well as underestimating legal costs and stamp duty, according to new research.
More than one in three first-time buyers (34%) are miscalculating how much they need for the deposit by having a goal of saving, on average, £34,397, according to a poll conducted for Aldermore. However, based on Office for National Statistics’ data, the average deposit needed is £49,639. This means that a typical first-time buyer will have a shortfall of 31%, or £15,388.
Unsurprisingly, the difference between first-time buyers’ expectations and the reality when it comes to saving for a deposit is particularly acute in the capital. Londoners are putting aside £48,000 on average for a deposit for their first home when the true cost is nearer £123,000 – a shortfall of £75,000.
According to Aldermore’s First Time Buyer Index for the third quarter of 2017, first-time buyers are also over-optimistic about how long it will take then to save up for the deposit. Almost three fifths (58%) expected to have hit their target in five years, while only 51% managed to achieve this and 16% took more than eight years to save up enough to buy their first property.
Miscalculating house-buying costs
The specialist lender and savings bank also found that first-time buyers are also anticipating spending less on solicitor’s fees and stamp duty, with 32% admitting that they don’t know how much these will cost. Of those who recently bought their first property, 40% spent an average of £2,334 more than they had expected on these fees.
Almost half (47%) of buyers who bought their first home in 2017 had a purchase fall through, at an average cost of £1,305.
“It is clear there is a divergence between perception and reality when it comes to the house-buying process. This often means those looking to buy are underestimating the associated costs as well as the time it could take to complete, especially with first-time buyers expecting it to take four years on average to save for a deposit,” says Charles McDowell, Aldermore’s commercial director or mortgages.
“This lack of understanding clearly has financial implications, but it can also take its toll emotionally. Our First Time Buyer Index carried out in the second quarter of 2017 revealed nearly one in five (17%) recent first-time buyers took three or more attempts to buy their home and the process of buying a first property caused so much stress over one in three (35%) were made ill.
“Some have suggested that the government plans to announce cutting stamp duty for first time buyers in the Autumn Budget – a step we would welcome. As it stands, first-time buyers are systematically let down by an overly complex, opaque and costly system.”
|Estimated first-time buyer deposit||Actual average first-time buyer deposit*||Difference between perception and reality|
|Yorks & Humber||£29,844||£27,555||£2,289|
|East of England||£33,536||£51,644||-£18,108|
*Source: Office for National Statistics
To qualify for a scheme such as a Help to Buy Isa, you cannot own, and must never have owned, any interest in land in the UK or anywhere in the world.