First-time buyers struggle to escape the deposit trap

As lenders ease their lending criteria and with the price of entry level properties remaining stable at around £155,000 over the past year, it is easier for first-time buyers to get on the housing ladder now than it has been at any time since the start of the credit crunch.

But consumers still struggle to save the deposit to buy their first home, with almost half (49%) of respondents to FindaProperty.com’s latest survey saying the difficulty of getting together a large enough deposit is the biggest barrier to home ownership. A fifth (21%) of would-be first-time buyers said the main problem was lack of mortgage availability, while 12% said it is the shortage of suitable properties on the market.

Due to the slightly more generous lending criteria, the average effective deposit needed by first-time buyers has dipped to £51,700 - down from £55,200 last month and over £70,300 in December 2008. This deposit - or affordability gap - is the sum first-time buyers need to find once they have raised the maximum mortgage based on their household income in order to buy the average first-time buyer home.

However, this month there are signs that first-time buyer property prices are starting to rise again, with a pick-up of almost £700 or 0.4%, after four months during which prices generally drifted down. In March, a typical first-time buyer home is on the market for £154,720, compared with £154,036 in February. Prices have remained largely stable over the past 12 months, with no change on March 2009.

Nigel Lewis, property expert at FindaProperty.com, comments:

“The big issue for people getting onto the housing ladder, as always, is raising the deposit - and in our survey almost half of respondents confirm that. This month, however, with lenders being more generous and property prices largely stable, the effective deposit is a bit smaller, making it easier for first-time buyers than since the start of the credit crunch.

“The cloud on the horizon is that prices are starting to show signs of upward pressure which could make homes more expensive over the coming months, if there remains a shortage of stock. More properties are coming onto the market, but there are still 12% fewer entry level homes available than a year ago.

“Lenders’ recent relaxation of criteria is welcome. They must keep up the good work, and actively look for ways to help hard working British families who see 2010 as the year to get on the housing ladder.”

In terms of the ‘affordability gap’, there are significant variations between the different regions of the UK - from £6,575 in the North East (down from £9,305 last month) to a whopping £130,155 in London (down from £133,997).