The deposit needed for a first-time buyer to purchase a home in London versus the rest of the country has hit record levels, as housing affordability worsens in the capital.
A typical first-time buyer must amass a 30 per cent deposit of around £142,588 to get on the ladder in the capital this autumn, about two and a half times the size needed anywhere else in Britain (£58,000). Analysis by Savills shows the price of a first-time buyer property is 85 per cent higher in London at £469,740, compared with £253,417 nationally.
Despite a muted property market, house prices in London are still on the move. Only this week Rightmove revealed that asking prices in the capital rose by 1.8 per cent in September, the biggest increase of any region. The two base-rate cuts expected in November and December should only serve to boost sales and prices over the winter. The big question for many working Londoners trying to buy their own home is whether the Budget will offer a leg-up onto the housing ladder.
The new homes maths just doesn’t add up
The new Labour government announced aggressive housebuilding targets in July, more than doubling the rate that was delivered in London last year, from 35,000 annually to 80,000. While reversion back to hard targets is welcomed by property industry experts to address the supply shortfall, this ambitious target is 114 per cent higher than the recent average.
Within the 80,000, local authorities (via the developers) are expected to also provide social housing and discounted schemes, explains Marcus Dixon, director of Residential Research at JLL.
“So, to be able to afford to build the right amount of social housing, developers must be able to sell 45,000 homes every year at a normal market rate. This is three times the number being currently sold in London,” he says. “It’s all well and good to try and turbo-charge construction but developers will not build if they don’t see a market.”
No news is bad news
With affordability so stretched and tenants who are trapped paying high rents unable to save for the high deposits required, the industry is crying out for proactive intervention, in particular the reinvention and reintroduction of Help to Buy.
Paula Higgins, chief executive of the charity HomeOwners Alliance, is not holding out any hope. “With Labour warning that October’s Budget will be painful as it aims to plug a £22 billion black hole in public finances, we are not overly optimistic that there will be a great deal to support first-time buyers. There have been no rumours that Help to Buy, for example, is coming back in.”
I do not expect a rabbit out of the hat from Government this time
Higgins believes the focus will be on funding social housing provision rather than supporting homeownership aspirations. She points to a leaked letter from Matthew Pennycook, the new housing minister, to Matthew Freeman, the chair of Homes England, stating: “I would like you to take steps to ensure that the agency is maximising the number of social rent homes.”
The outlook is getting worse, not better
Stamp duty is seen by many as a punitive tax that slows sales, deterring households from selling and upsizing or downsizing. Rumours suggest the Chancellor is planning to reverse the stamp duty discount set by the Conservatives. This means the nil rate of the levy for first-time buyers will apply from £300,000 rather than £425,000.
Despite the huge gulf in house prices between London and the rest of the country, there will be no regional variation.
Rightmove calculates that 25 per cent of properties in London are below £425,000, but only eight per cent are under £300,000. Analysis from Hamptons finds that 37 per cent of FTBs currently pay stamp duty in London; by next April this will have risen to 71 per cent.
So, what can wannabe homeowners hope for?
The mortgage guarantee scheme, launched in 2021, is being rebranded as Freedom to Buy. This is the state’s guarantee to lenders against 95 per cent mortgages so that first-time buyers have to find a five per cent deposit rather than a 10 per cent one.
“This has not really made a difference in getting FTBs onto the ladder, in fact the banks are already lending at 95 per cent and even developers have launched their own version — Deposit Unlocked,” says Mark Harris of the mortgage broker SPF Private Clients. “What we really need to see is a Help to Buy initiative across all property types so buyers can access the converted flat market across London.”
Higgins is also calling for reforms to the Rent a Room scheme. Due to soaring mortgage repayments, Rent a Room allows those homeowners renting out a room to get income tax relief up to £7,500. But this has not been updated since 2015 and the HomeOwners Alliance is lobbying for an extension to £10,000.
Reform to the Lifetime ISA is on Higgins’s wish list too. “If the Government really want to help then updating the Lifetime ISA scheme is a no-brainer. By removing the outdated 6.25 per cent LISA withdrawal fine for people buying a home above the current £450,000 price limit — a threshold that hasn’t changed since 2017 — more people would have the confidence to stay in the scheme and keep saving.
The Government needs to find a way to make sure these schemes keep pace with house price growth and that people wanting to buy are not penalised,” Higgins says.
However, these measures tinker but do not “move the dial”, according to JLL’s Marcus Dixon. “I do not expect a rabbit out of the hat from Government this time,” he says.
What it takes to buy a home
Gustavo Tavares, a chef, and Carlota dos Santos, a performance artist, have been renting in east London. Both in their thirties, they have been saving towards a deposit for six years and were set on London Fields. High prices there took them instead to Bow where they made another concession.
Rather than getting a period doer-upper they ended up looking around Bow Green, a development by Berkeley. They were attracted by the indoor and outdoor pools, gym and on-site cinema, but they are also able to pay in instalments and wait for the completion of the building before securing a mortgage deal — which they believe will be cheaper next year.
Buying a new-build flat off plan means we are buying a property at today’s price but with completion two years away it will have already gone up in value
So far, they have paid a 10 per cent deposit, with help from their families. They are due to pay a further 10 per cent in a year and the remaining balance on completion, with a 40 per cent deposit in total and a 60 per cent mortgage.
Gustavo is keen to open his own restaurant but is holding off, so he has a stable job when finally securing the mortgage. “Buying a new-build flat off plan means we are buying a property at today’s price but with completion two years away it will have already gone up in value,” he says. He’s banking on interest rates coming down, too. Homes at Bow Green start from £470,000.
