7th November 2014
The Help to Buy mortgage guarantee coupled with a property price dip in September has pushed the average deposit to below £9,000.
The Help to Buy scheme has two parts, the first is an interest-free loan for first-time buyers purchasing a new build home and the second, more popular part, is the government’s mortgage guarantee which allows all buyers the chance to purchase any property with just 5% deposit up to a total property price of £600,000.
Figures from Mortgage Advice Bureau (MAB) show buyers using the mortgage guarantee were able to get on the property ladder with an average deposit of £8,974 in September, a 3% decrease from August when the cost was £9,229. In the wider market the average deposit was £67,929 in September.
The average property bought under the scheme in September was £150,488, lower than the £226,641 paid in the wider market and the lowest price recorded in four months.
MAB said this suggested the figures proved the mortgage guarantee scheme was helping less affluent buyers, like it was designed to do. Buyers who purchase under the scheme have an average loan-to-value of 94% compared with 70% in the wider market.
The reduction in deposit means it is easier to get on the property ladder and MAB calculated that a couple would be able to purchase a home after just nine months of saving.
The average primary income of mortgage guarantee applicants is £31,270, who take home £2,018 each month. If they saved 25% of this each month they would be able to save the amount needed within 1.4 years. For couples or those buying with another person, they could save the amount needed in just nine months.
Brian Murphy, head of lending at MAB, said: ‘The Help to Buy mortgage guarantee scheme continue to fill a void in the market in terms of affordability, offering a realistic way into the property market for buyers who are unable to save a large deposit.
‘The generosity of the 95% loan-to-value associated with the scheme is clearly not being abused: lower earners are using the scheme to purchase lower-prices properties and are taking on much smaller levels of debt as a result. Our data shows that even those aspiring owners who haven’t begun the task of savings until now can still feasibly become homeowners through the scheme in a relatively short space of time, while sharing the deposit with a partner or friend could reduce this period of saving to under a year.’