A report by Leeds Building Society forecast that up to 426,000 first-time buyers in England will be priced out of the UK housing market between 2023 and 2027, reinforcing the need for action to protect homeownership for future generations.
Leeds Building Society, in partnership with WPI Strategy, analysed first-time buyer affordability between 1982 and 2022, and how the challenges had changed.
Economic data, including OBR and Treasury forecasts, was used to model what the next five years could hold.
The report, ‘A Place to Call Home’ showed that between 1982 and 2022 the multiple barriers facing first-time buyers continued to make it difficult to get on the housing ladder.
The report found that house prices paid by first-time buyers were 16-times higher in 2022 than in 1982, while first-time buyer gross earnings were only seven-times higher – meaning the house price to earnings ratio for this group more than doubled, from two-times earnings to almost five-times earnings.
Average deposit requirements rose from 25.5% of average first-time buyer earnings in 1982 (£2,100) to 115% in 2022 (£68,700).
It would have taken up to 12 years for an average private renter to save their deposit in 2022, up from 2.5 years in 1982.
With the Bank of England base rate increasing 14 times to 5.25% since the end of 2021, Leeds said there was now a potent mix of high deposits and high repayments, making 2023 a crunch year for first-time buyers.
Mortgage repayments now take up a greater share of earnings, even though the earnings are higher than in 2022.
Those able to buy a first home were typically more affluent and would need higher incomes than ever before.
In its 2023-27 forecast, Leeds Building Society said it expected fewer first-time buyers every year than the 315,000 transactions in England in 2022.
Cumulatively, over the five-year forecast period, and when set against the 40-year average of 340,000 first time buyer transactions, 426,000 fewer first-time buyers would join the housing ladder at the current trajectory, without intervention.
Richard Fearon, CEO of Leeds Building Society, said: “More than a decade of low interest rates have papered over the cracks in the housing market.
“It has masked a growing gap between people with the ability, or family help, to build ever higher deposits and stretch their repayments and those who cannot.
“If left unaddressed the gap will become a chasm – in the next five years, the number of aspiring homeowners priced out of the market could be enough to fill a city bigger than Coventry.”
Leeds Building Society said action was required in three key areas to build a market which better supports and empowers first-time buyers: building more homes of all types, with a major acceleration of current efforts and policy; increasing affordable routes to home ownership, with renters’ reform to provide greater protection for those saving for a deposit; and supporting people to save for their deposit, with reform to the Lifetime ISA scheme to reflect house price increases.
Fearon added: “We risk creating a lost generation of first-time buyers – a terrible scar on the face of a country that prides itself on people’s ability to own a home, create roots in their communities, and prosper as a result.
“We need to develop a long-term plan before things get even worse: building more homes of all types, increasing affordable routes to home ownership and supporting people to save for their deposit.”
