For most people in the UK, the most expensive thing they will attempt to buy is a house, with a car probably in a distant second.

Around 70% of house purchases rely on obtaining a mortgage. As house prices rise faster than wages, an environment has been created where homebuyers need to pay a larger percentage of the purchase price with their deposit, as their wage will not allow them to secure a mortgage at the level they require.

The rise in house prices compared to wages has been dramatic. Below we show how many times the annual average salary for an area, the average property costs in that same area, comparing prices from 1997 up to the end of 2020.

In 1997, roughly 3.5 times the average salary was required to buy a house in the UK.  By 2020, this figure had risen to just under 8 times the average salary.  A combination of house prices rising and wages freezing or minimally increasing through various financial crises.

This rise has to an extent been compensated for by the reduced cost of borrowing for a mortgage. For example, we would now view rates in excess of 4.00% as very high.  However, it does highlight the importance of saving for a house deposit today and appreciating how long it may take.

At the moment, a first-time buyer may be able to borrow as much as 5.5 times their salary, while the average UK home purchase price is approximately 7.5 times their salary. This difference would require a homebuyer to save a deposit of twice the average salary (or around £60,000 based on the ONS average earnings).

Saving a sizeable deposit will be extremely difficult for most people.  However, there are ways to make it slightly easier.  One option is to save via a Lifetime ISA wrapper, allowing a first-time buyer to benefit from the UK government topping up their contributions by 25% (up to a £1,000 contribution from the government per annum).  The only provision is that the money must be spent on a first home or saved until retirement.

Another option for those who have a slightly longer time frame to save is investing in global markets. Historically markets have outperformed earnings and house prices.  Leaving savings exposed to markets for a more extended period could help inflation-proof savings against house price rises, reducing the overall deposit required from getting any bigger.

Patrick Christie
Graduate Trainee Financial Planner – WealthFlow
Patrick.Christie@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.