Finance

Many FTBs miscalculate the true cost of buying a home

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1st November 2017

According to the latest research from Aldermore, there is a real lack of understanding around the house buying process and the associated costs amongst those looking to buy their first home.

The biggest expense when buying a home is saving for the deposit and this remains the number one obstacle for around 34% of those trying to get a foot on the property ladder.

However, the latest research shows prospective buyers are falling short in their estimations of how much they need for their first deposit, aiming to save an average of £34,3972. In fact the average deposit needed is £49,639 according to the ONS – meaning many first time buyers will be faced with a huge deposit deficit of 31% equating to £15,388.
 
When examining this trend across the regions, this disparity is particularly evident in London. First time buyers looking to buy in the capital are aiming to save an average of £48,000 when in fact official figures show the average deposit is more than double at £123,000 which would leave them £75,000 short. Other regional disparities include:

Estimated First Time Buyer Deposit

Actual average First Time Buyer deposit (ONS)*

The Difference of between perception vs reality

Total

£34,397

£49,639

-£15,242

North East

£32,662

£24,937

£7,725

North West

£29,206

£28,252

£954

Yorks & Humber

£29,844

£27,555

£2,289

East Midlands

£30,427

£30,708

-£281

West Midlands

£28,275

£33,059

-£4,784

East of England

£33,536

£51,644

-£18,108

London

£48,222

£123,398

-£75,176

South East

£37,798

£61,491

-£23,693

South West

£26,441

£45,074

-£18,633

Wales

£27,963

£26,307

£1,656

Scotland

£22,579

£26,350

-£3,771

Prospective first time buyers are also under estimating the amount of time it will take them to save for this deposit. Almost three fifths (58%) believe they will be able to reach this goal within five years while in reality just half (51%) of recent first time buyers reached their goal in this time and actually over one in seven (16%) took over eight years to get there.
 
When it comes to all the additional costs associated with buying a home, extras such as solicitor’s fees and stamp duty, almost one in three (32%) prospective first buyers simply don’t know how much all of this costs. For those who have recently managed to get on the property ladder, two in five (40%) spent more than expected on these extra costs, by an average £2,334.
 
First time buyers also have to take into account the potential costs of a property purchase falling through. Almost half (47%) of first time buyers who bought this year experienced the collapse of a property purchase, at a cost of £1,305. More broadly, over a quarter of those (26%) who bought over the last three years have also experienced this, evidencing just how exposed first time buyers are within the current housing environment.

Charles McDowell, Commercial Director, Mortgages: “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 under-estimating 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.
 
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.
 
At Aldermore, we are fully aware of the issues first time buyers face, and we want to do all that we can to support them when it comes to securing a mortgage. Our human approach to lending enables us to consider each case on an individual basis. We also offer various products to help first time buyers, including the family guarantee mortgage and 95% loan to value mortgages for customers who have a smaller deposit. We always recommend customers shop around to ensure they choose the best mortgage product for their individual needs.”

Prospective first time buyers are also under estimating the amount of time it will take them to save for this deposit. Almost three fifths (58%) believe they will be able to reach this goal within five years while in reality just half (51%) of recent first time buyers reached their goal in this time and actually over one in seven (16%) took over eight years to get there.
 
When it comes to all the additional costs associated with buying a home, extras such as solicitor’s fees and stamp duty, almost one in three (32%) prospective first buyers simply don’t know how much all of this costs. For those who have recently managed to get on the property ladder, two in five (40%) spent more than expected on these extra costs, by an average £2,334.
 
First time buyers also have to take into account the potential costs of a property purchase falling through. Almost half (47%) of first time buyers who bought this year experienced the collapse of a property purchase, at a cost of £1,305. More broadly, over a quarter of those (26%) who bought over the last three years have also experienced this, evidencing just how exposed first time buyers are within the current housing environment.
 
Charles McDowell, Commercial Director, Mortgages: “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 under-estimating 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.
 
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.
 
At Aldermore, we are fully aware of the issues first time buyers face, and we want to do all that we can to support them when it comes to securing a mortgage. Our human approach to lending enables us to consider each case on an individual basis. We also offer various products to help first time buyers, including the family guarantee mortgage and 95% loan to value mortgages for customers who have a smaller deposit. We always recommend customers shop around to ensure they choose the best mortgage product for their individual needs.”

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