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First-time buyer deposits

Journalist: Melissa Lawford, The Telegraph

ended 28. October 2022

I'm writing a story about how much first-time buyers need to increase their deposit sizes in order to make their mortgages affordable/buy the same home they would have been able to afford before mortgage rates jumped.

Are you seeing first-time buyers using larger deposits in response to soaring mortgage rates? How much more are they putting down in cash in order to make their mortgages affordable? Where are they getting the money from? Is the Bank of Mum and Dad stepping in? Or are first-time buyers simply getting shut out altogether?

7 responses from the Newspage community

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Rita Kohli
Managing Director at The Mortgage Stop
Following recent economic events, first-time buyers do need to increase their deposit size in order to compete in the market. It was difficult enough previously to secure a mortgage for 90% or more but now you pretty much need a near perfect credit history and income well above the national average. Over the past few weeks, we've seen a tightening of lending criteria and affordability calculations. Consequently, unless you can come up with a larger deposit, buying plans may need to be put on hold. Certainly, in the south where the majority of our business is, we're seeing some clients needing to find an extra £10k to £20k if they want to secure their purchase. However, our job is to find solutions for our clients and there are innovative lenders out there that offer ways for first-time buyers to get onto the property ladder with the help of their family. We've certainly helped a number of clients in the past few weeks with mortgages from lenders such as Generation Home - and it's not just the bank of mum and dad that are having to help out, it's also the bank of grandma and grandpa.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
"It has become nigh on impossible for first-time buyers to continue purchasing at the levels they have been. The stricter affordability calculations and higher interest rates have made the monthly payments too much of a stretch. In addition, parents are also struggling with record inflation and therefore there is less available for the Bank of Mum and Dad to gift. A reduction in house prices will be welcome news for first-time buyers."
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Imran Hussain
Director at Harmony Financial Services
I am seeing more first-time buyers receive assistance from family members, be it parents, aunts, uncles and grandparents helping with gifted deposits to allow them to be able to secure the best possible mortgage deal possible. Also, people buying with a partner are not really that concerned about interest rates, and neither are first-time buyers who are renting and are cracking on with a house purchase as rents skyrocket.
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Gaurav Shukla
Managing Director at Home Me Mortgages
With mortgage rates having increased to levels some people may never have witnessed before, first-time buyers are now struggling with affordability. Before the craziness in the market, FTBs could still get a mortgage by putting down a 5% deposit. Now, however, with those rates sitting at 6%+, FTB’s are using the Bank of Mum and Dad more to increase their deposits, if they can. Otherwise I am seeing them go for properties that are lower in price to make it affordable - not likely to be something they would have gone for if markets were still somewhat normal. There are lenders such as Proportunity, a relatively new equity loan lender, which can help boost FTBs' borrowing power to enable them to borrow the amount needed by also keeping payments low as they are on interest only. The lenders would have to consider changing their criteria around interest-only mortgages for a short period of time or we may see less properties being purchases by FTBs.
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Mark Robinson
Managing Director at Albion Forest Mortgages
Enquiries from first-time buyers have fallen by over 50% across the board. This shows they do not have confidence in the housing market currently. They would need dramatically larger deposits in order to save the amount required. I ran some tests on this earlier this week and first-time buyers that could have put in 5% deposit previously would need to put in 25% now to keep the same monthly payments. This is not an amount of money people usually have access to, and is therefore causing them to struggle. We are seeing parents wanting to use equity release in order to free up inheritance for their children to buy homes. It's scary, but with rents going up due to the stress testing required now on buy to lets as well, many don't have a choice but to buy.
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Jamie Lennox
Director at Dimora Mortgages
For first-time buyers in our area, they'd need to be putting down tens of thousands of pounds extra as a deposit to bring their mortgage payment down to a manageable level. With the previous lack of property coming to the market and many selling in excess of the asking price, it's meant some buyers have been looking for over six months for a property. The shock on many buyers' faces when they realise that the same mortgage they could have got 6 months ago is now hundreds of pounds more per month are putting the breaks on for many potential buyers. There's been a real tipping point where renting has become cheaper than having a mortgage.
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Ashley Thomas
Director at Magni Finance
There is not a significant difference with rates unless you can increase your deposit from 10% to 40%. Even then the difference is minor compared to the amount of additional deposit. For example, if you went for a 5-year fixed rate, the rate with a 10% deposit would be 5.49% and the rate with a 40% deposit would be 5.34%.