The challenge of saving for a deposit

Nov 4, 2016
With reports that the government bonus from the Help to Buy ISA cannot be used to pay for a deposit on a home, the challenge of getting a first-foot on the the property ladder just got even harder. Potential first-time buyers already face an incredible struggle.


Latest ONS house price index shows property prices jumping by an average of £3,000 month-on-month. That’s more than the monthly salary for a lot of aspirational home buyers. With house prices rising at this pace, deposit sizes are also increasing. Research from the CEBR suggests that the average first-time buyer now needs to save £48,198 for their deposit, a 117% increase on 10 years ago. Saving for a deposit currently remains the biggest barrier to home ownership in the UK.

The hurdles first-time buyers have to jump over to save for this deposit are also getting higher. The ONS states that rents have risen by an average 2.3% over the last year, effectively cancelling out the 1.8% growth in average annual earnings. Fuel bills, another major expense for most tenants, are also increasing by about £80 a year. With this uplift in the cost of living, half of renters can’t afford to save any income each month and a further 16% can’t save more than £50 per month. Even if renters can afford to put a little money away each month, low interest rates mean they’re unlikely to get a decent return, with average easy access savings accounts offering just 0.5% interest.

The government is trying to help, with Theresa May stating that tackling the housing crisis is one of her top priorities. They are still committed to building a million new homes by 2020 to increase the housing supply and control house price growth; the recent softening of language around needing a range of affordable tenures is very welcome. They’ve also offered a series of schemes to help first-time buyers, including starter homes and a range of affordable home ownership schemes. But this won’t be enough to take on the full challenge. The private sector has to do more to help. This is why we designed our model to help people locked out of home ownership, particularly those who are struggling to save for a deposit.

We aim to provide an alternative route to home ownership by offering affordable rents at 80% of the market rate to help our tenants save. We also provide a gifted deposit of 10% of the property’s value when our tenants buy their home to make it easier for them to afford their dream of home ownership.

While our scheme will help increase home ownership, its only part of the solution. If we really want to see an uplift in the number of people able to get on the property ladder, greater co-operation between the government, local authorities and the housebuilders is essential. Widening the definition of ‘starter homes’ to include affordable rent-to-buy models like ours would be an excellent first-step. This would allow us to increase and accelerate the supply of affordable housing we could provide. This could help the private sector institutional investors to fund more alternative routes to homeownership, now that the traditional path for aspirational home owners is too steep for many.

Richard Connolly, CEO of Rentplus

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