A study by financial services provider First Direct has revealed how tough it has become to buy a house in the past twenty years, citing severe discrepancies between the rise in the price of properties and deposits and that of salaries.

Tenfold Increase In Average Deposit

According to the study, the average deposit for a house has risen almost tenfold from £6,793 in 1990 to £65,924 in 2011. The two reasons given for this enormous jump in required deposits are both the higher house prices which have become, on average, 4.3 times more expensive; and the lower amounts that banks and building societies are willing to lend on their mortgages.

Meanwhile, average household incomes have only increased by just over double, falling short of the climb in house prices. The impact of such incongruous rises is such that buyers must now save for much longer periods of time before being able to afford deposits.

First Direct’s study states that, between 1990 and 2011, the most affordable years to buy a house were 1995 and 1996. 2010 was the toughest year, with house prices on average being 6.3 times more expensive than the average income, and deposits at 1.7 times the average income

Recession Impact

The study also examined the effect of recession on the affordability of properties, taking into account the recessions between 1990-1992 and 2008-2009.

In the recession of the early 90s, there was a small increase in household income, as well as a decrease in the average house deposit, which stayed low for most of the decade with inflation.  Such circumstances proved to be beneficial to first time buyers.

In contrast, the previous recession has been less advantageous to first time buyers and homeowners alike, with a significant £1,688 drop in the average household income. House prices sunk by an average of £10,148; particularly bad news for homeowners. First time buyers were not helped by this development either, as they faced a significant hike in the cost of a deposit. To date, the average deposit for a property has increased by £22,451 since 2007, meaning that the average age of a first time buyer is now 37.

Currently, the average loan to value (LTV) is at 73% – its lowest ever – whilst in the mid 90s, it was around 90%.

First Direct’s comparison of the two recessions has reveals that, whilst the early 90s recession affected existing homeowners most significantly (mortgage rates hit 15%, causing forced sales and falling prices), the most recent recession has impacted most greatly on first time buyers, who are having to save longer for their deposit.