Britain’s first-time buyer hit by borrowing eligibility gap

Gap between the average cost of a first home and first-time buyer borrowing eligibility means market is unaffordable for majority of Brits

Research by Stipendium, the platform that simplifies life’s complex events, has revealed the tough task facing the nation’s first-time buyers, when it comes to their mortgage purchasing eligibility versus the reality of what’s actually required to buy a home in the current market.

Stipendium analysed the purchasing power of the average first-time buyer based on their ability to borrow via a mortgage at 4.5 times their earnings. Stipendium then looked at how this level of purchasing power compared to the actual sum required to purchase a first home based on the current first-time buyer house price, minus a 15% deposit.

The research shows that across Great Britain, the average annual gross salary of a first-time buyer is £32,927. At 4.5 times their income, it means the average first-time buyer can secure a mortgage on a property valued up to £196,818.

However, the average first-time buyer house price is currently £234,469. Even after detracting a 15% deposit of £35,170, this still leaves £199,298 to be covered by a mortgage, meaning that the average first-time buyer is short by over £51,000 (-26%) based on their income mortgage potential.

London is predictably the least affordable region for a first-time buyer, where their mortgage potential sits at £196,818 based on 4.5 times their income, while the average first-time buyer house price is £457,433, leaving £388,818 to cover once a 15% deposit has been saved – a huge difference of £192,000.

The South East (£94,109), East of England (£88,291) and South West (£88,603) are also home to some of the biggest gaps in first-time buyer affordability between their borrowing potential and the actual cost of buying.

However, there are two areas of Britain where first-time buyers are in luck.

In Scotland, the average first-time buyer earns a gross annual income of £31,172, meaning they are able to borrow £140,276 at 4.5 times this income. The average first-time buyer house price is £149,536, leaving £127,106 to cover when borrowing after a deposit is saved, meaning first-time buyers are £13,171 in the green when it comes to property market affordability.

In the North East, first-time buyers are able to borrow £112,716 based on the gross income, £12,973 more than the sum required to cover the cost of the average first home less a 15% deposit.

Christina Melling, CEO of Stipendium, commented:

“Years of sustained house price growth have put today’s first-time buyers at a severe disadvantage, especially when you consider the fact that the growth in available earnings simply hasn’t kept pace.

As a result, many first-time buyers are restricted when it comes to their house hunt, as they can only look to buy at the price thresholds that lenders will allow them to borrow.

As our research shows, there’s quite a stark difference between this borrowing eligibility and the actual cost of a home and so it’s hardly surprising that so many struggle to get that first foot on the ladder, or worse, are completely priced out of the market.”