Again, house prices reached an all-time record.
The average house price in Britain has now reached £272,992, according to the Halifax house price index – £20,757 more than a year ago.
You can view this as either good or bad news depending on where you stand.
Tough times: Today, an average home costs 5.5 times the typical first-time buyer’s salary – far higher than the long-term average
That’s a division that previously was often crudely made between homeowners and non-homeowners, but I think we can safely say the latter camp has got increasingly crowded in recent years and there are a lot more homeowners eyeing extra bedrooms in it.
Spare a thought though for the first-time buyers struggling to save a deposit, who are watching the average home get pricier at a rate of £1,700 per month.
That £273,000 average house price makes a 10 per cent deposit a huge £27,300 – roughly an entire year’s pre-tax median full-time salary in the UK.
It is hard to imagine starting fresh and saving that much money in an age of compound interest at a sub-1 percent savings rate.
Someone in their early twenties, on a £27,000 salary, paying rent, bills, commuting costs, and other living expenses would be doing reasonably well if they could save £200 per month of their roughly £1,800 take home pay.
Putting that much aside each month, it would take just under 11 years to reach £27,300 at the current best buy easy access savings rate of 0.75 per cent.
But as we highlight in our Ask an Expert question about investing for a deposit, taking more risk for a higher return doesn’t shave a huge amount off the time needed to reach the target.
If our first-time buyer invested £200 per month and got an average annual 7 per cent return – which is above the recent medium-term FTSE All Share average – it would take eight years and nine months.
These are the long-term periods that qualify for investment and not savings strategies.
They take on extra risk to lose money in order to receive a greater reward. As they get closer to the moment when they will need the deposit, the stock market crashes, leaving them with a loss of 10, 20, or 30%.
It is important to remember to put aside extra money every month.
Get up to £300 per month and in the above savings rate example it would take seven years and five months instead of almost eleven.
It would be six years and two more months to invest in the example of investing, rather than almost nine years.
This is still long enough to make any prospective first-time buyer despair – especially when the cost of a home is rising far faster than they can salt money away.
The mortgage lender reported that quarterly house prices rose to a level not seen since 2006.
The above sums show why first-time homebuyers often need assistance from Bank of Mum and Dad when they are trying to obtain a deposit.
But not everyone has one of those banks available – and many who do can’t tap it up for tens of thousands of pounds.
Fortunately, there is another helping hand that I’d recommend any aspiring first-time buyers who qualify take advantage of, the Lifetime Isa.
It’s easy to make a deposit on a house if your age is under 40.
Contributions to this government program are increased by 25 percent each year, on either a savings version or a stock and share investment version. The catch is that it must go towards a home or serve as a substitute for pension funds and can’t be accessed after age 60.
Up to £4,000 a year can be contributed to a Lifetime Isa and that 25 per cent bonus will make a real difference to knocking some years off saving for a deposit, especially if you start getting money into one as soon as possible.
To earn the Lifetime Isa bonus, you can shuffle your existing savings and gifted assistance from the Bank of Mum and Dad to get the bonus and compound interest.
While saving a deposit is still difficult, it can be done. Fingers crossed that house prices will slow down and wages rise, which will make saving a deposit much easier.