The economic situation may be pretty bleak but there is a silver lining for those who want to get on the property ladder.
A new report has painted a depressing picture of the prospects facing would-be home buyers in the UK.
The analysis from savings website Investor Bee gives an idea of how long it would take a typical first time buyer to save up a 20 per cent deposit based on average savings rates and property prices in various parts of the UK.
In London, for example, where the average house price is currently £429,912 and the average savings rate is 9.6 per cent of income, it would take more than 19 years to amass a 20 per cent deposit, InvestorBee says.
In East Anglia, on the other hand, the savings rate is the same but the average cost of a home is significantly lower at £196,011.
This means it would take just less than 12 years to put a deposit together.
All doom and gloom?
That’s the bad news. But, as ever when it comes to statistics, this report does not necessarily tell the whole story.
For a start, there's not much point using overall average house prices to analyse affordability for first time buyers as this group is likely to be looking at cheaper properties such as smaller flats and starter homes.
Figures from property website Findaproperty.com for October, for example, show that the average cost of a first time buyer home in London is around £260,000.
This is considerably less than the £430,000 figure used by Investor Bee.
A first home in East Anglia, on the other hand, is around £140,000, says Findaproperty.
These more realistic figures mean saving up a deposit should be significantly easier.
Based on a savings rate of 9.6 per cent of income, a first time buyer in London could save up 20 per cent in less than 12 years, and in East Anglia around eight-and-a-half years.
Silver lining
The economic situation may be pretty bleak but there is a silver lining for those who want to get on the property ladder.
House prices are no longer soaring every month as they had been until the credit crunch hit in 2007.
So if you can’t afford to buy right away you’re unlikely to face much higher asking prices if you have to wait a few months.
If Britain’s economy remains as weak as has been predicted over the next few years, it is hard to see property values rising substantially in the medium term.
For first time buyers, this means there is less pressure to make a purchase as soon as possible.
As a result there is scope to save up a decent deposit to help keep mortgage repayment costs low and reduce the risk of falling into negative equity in the future.
Buyer's market
David Hollingworth at mortgage broker London & Country says a large deposit is key.
“The advice for first time buyers still has to be to save as large a deposit as possible which will help secure a wider choice of lender and better rates as a result.
“On the upside there is no sign that house prices are likely to run wild other than the odd hotspot.
"That means that first time buyers can concentrate on finding the right property at the right price and it is likely to remain a buyer's market to a great extent.”
Pay a lower deposit
Of course it’s not obligatory to save up at least 20 per cent of the purchase price to put down as a deposit.
After the credit crunch, mortgage lenders reduced the number of loans available to those with low deposits of just 5 or 10 per cent.
But high loan-to-value mortgages have made a bit of a comeback in recent months, says Hollingworth, even if the outlook is less optimistic.
“There are more lenders offering mortgages at higher loan to value and the rates available have gradually improved as a result.
"That will hopefully continue, although there is a lot of uncertainty stemming from the potentially tighter funding conditions that is already being dubbed a second credit crunch.”
Get help from your family
First time buyers aren’t always on their own when it comes to pooling a deposit.
There is a good chance that parents or other family members will be able to help out.
Research published earlier this year by Yorkshire and Clydesdale banks found that 84 per cent of new buyers relied on financial support from their parents to help them on to the property ladder.
This compares to just 38 per cent in 2005.
In many cases this will just be a cash gift or a loan without any interest charges attached.
But some lenders will allow a parent to act as a guarantor on the mortgage.
This means that their income can also be taken into account when working out how much you can borrow, enabling you to buy a more expensive home.
The Co-operative Bank, for example, has a deal which can lend up to 4.5 times the applicant’s salary plus 1.5 times a guarantor’s annual income.
This is available on loans up to 85 per cent of the property’s value, and the mortgage is capped at £300,000.
The interest rate is fixed at 4.39 per cent until 2015.
New government aid scheme
There was a further boost to potential buyers recently when the government announced plans to help young people buy new-build homes.
This will involve the state underwriting part of the loans, which means buyers would only have to put down a 5 per cent deposit. Full details have yet to be released.
But some experts are unconvinced that this programme – the latest in a long line of government-backed plans to help first-time buyers – will have a serious impact on the property market, given that purchases will be limited to new homes.
Hollingworth says: “This could help to stimulate more lending for those with smaller deposits although we'll have to see what products lenders actually put on the table.
“It won't change the market overnight but any help has to be seen as a positive move."
