The Frugal Four: First-time buyers (FTBs) spend four years adjusting lifestyle to save for their dream starter home

  • New Post Office Money research reveals the average FTB will spend four years carefully saving towards their deposit
  • FTBs commit to saving almost 20% of their average joint household salary
  • Blackpool, Lincoln and Hull are identified as the affordability hotspots for first-time buyers, along with other areas across the country
  • Overall, 57% of all properties sold in the UK last year were in areas affordable for first-time buyers
  • Post Office Money launches new online tool that will allow first time buyers to map their deposit savings plan based on property affordability in their are

Post Office Money today revealed that the average first-time buyer (FTBs) will spend four years living a leaner lifestyle in order to get a foothold on the property ladder.

In a study of more than 1,000 people who made their property ownership goals a reality in the last 24 months, compromises made to lifestyle were the primary way prospective buyers managed to save towards their first home (33%).

The deposit savings journey

The average deposit for first homes in the UK last year was £51,500, according to the Office for National Statistics. This varied from £21,571 in Blackpool to £173,431 in London, with keen FTBs managing to set aside 24% of the value of their property in advance of their purchase, on average. 30% of this is likely to be gathered via family contributions, meaning loved ones will contribute 7% of the overall value of a first-time buyer home on average.

Approximately 70% of this deposit is reached through saving, with recent FTB households setting themselves an average savings target of £815 a month – ranging from £565 in Scotland to over £1,000 for prospective FTB households in London. To achieve their deposit goal this means putting aside 20% of the monthly joint income of first-time buyer households (£4,105 a month) – which is often split between two partners contributing. These monthly targets – often coupled with additional monetary support from loved ones averaging £15,489 (30% of the average deposit), allow the average FTB to reach their deposit goal in less than five years.

Compromises and income boosters

Areas where recent FTBs were most willing to compromise % of recent FTBs
Quality of lifestyle while saving 31%
The length of time it took to save (e.g. they didn’t care how long it took) 23%
The location of the new home 19%
The specifications of the new home (e.g. number of bedrooms, size of garden etc.) 17%

In order to reach this monthly goal, FTBs are most willing to compromise on the quality of their lifestyle rather than on their property purchase or the length of time it takes them to save. The majority of recent FTBs (92%) commonly sacrifice luxuries such as going on holiday (31%), nights out (30%) or takeaways (26%). However, some make bigger lifestyle changes to reach their goals. One in five (22%) move out of their home to save more money, either moving back in with their parents (13%) or downgrading their rental property to something more affordable (9%). Those living in the North West are the most likely to make compromises to reach their goals, with 98% doing so over the course of their savings journey. In addition to cutting back, recent FTBs also looking for ways to boost their income in order to keep up with their deposit goal (84%). This includes taking on overtime as part of their existing job (30%), looking for a higher paying role (21%) or taking on additional paid work to boost their income (17%).

However, this combination of sacrifice and fundraising has an impact on prospective buyers over the long-term. One in five recent FTBs admitted that their motivation to save waned over time (21%) and found the time it took them to save frustrating (20%). This led some to allow themselves a ‘savings holiday’ where they took a break from putting money aside (14%). Some recent FTBs also admitted to dipping into their deposit savings at some point in their journey to fund other areas of their life for (18%), including holidays (23%), special occasions (23%) or even to supplement their day-to-day income on costs like the weekly shop, during difficult periods (23%).

Ross Hunter, Post Office Money comments:

“While many prospective buyers choose to make lifestyle compromises as they save towards their first home, there is no ‘right way’ to reach your deposit goals. Some FTBs will prefer to take longer saving for a deposit rather than cut back on their monthly spending (23%), whereas others will be willing to compromise on the property itself (17%). Half of all FTBs (56%) will also turn to their family for financial assistance to help build their deposit.

“One inevitable element of the house hunt that all buyers will need to contend with is finding an affordable area in which they can invest their hard-earned money.

”Post Office Money has also launched a new online tool, allowing new buyers to map out their deposit plans based specifically on property affordability in their chosen area: www.postoffice.co.uk/mortgages/this-is-my-home .”

Affordability considerations

A common area where recent FTBs will need to adjust their expectations is the location where they purchase their first home (63%), due to affordability considerations. On average, new buyers will end up moving 29 mins or 5.2miles away from where they originally intended. But once FTBs have gone through the journey of getting together their deposit, how affordable is the property market for them? In many cases, the shifting affordability of the UK housing market can lead FTBs to reconsider their original plans, as they look for a suitable property amongst the 57% in areas that are affordable for first-time buyers. In order to give buyers greater insight into what they can expect, Post Office Money has looked at the affordability of areas in over 80 locations around the UK.

Blackpool, Lincoln and Kingston upon Hull are the UK’s most affordable cities for FTBs, and there are pockets of affordability spread across many areas of the country.

Affordability peaks in Blackpool, where the average property price is £112,000 compared to the average FTB household income in the North West of £39,611, making 100 per cent of properties in areas deemed affordable to new homeowners. Lincoln and Hull were also among the UK’s ‘affordable hotspots’, both having 100% of properties in areas affordable to first-time buyers, respectively.

Top 10 most affordable areas for local first-time buyers

County City Average house price 1-year
change
FTB income % of city affordable
Lancashire Blackpool £112,000 +6% £39,611 100%
Lincolnshire Lincoln £143,950 +3% £39,834 100%
East Yorkshire Hull £110,000 +2% £37,840 100%
South Yorkshire Rotherham £133,000 +0% £37,840 97%
West Midlands Sandwell £137,950 +8% £41,024 95%
Staffordshire Stoke-on-Trent £110,000 +5% £41,024 94%
Hampshire Southampton £210,000 +8% £56,429 94%
Greater Manchester Tameside £137,500 +7% £39,611 93%
South Yorkshire Barnsley £124,995 +5% £37,840 93%
Greater Manchester Wigan £130,250 +4% £39,611 93%

[Full data of over 80 locations, available upon request]

In the last year, Luton has seen the biggest shift in affordability for FTBs, with the number of properties affordable for this group shrinking by 29 per cent, leaving only 38 per cent of neighbourhoods in the city affordable for the average FTB’s budget. This follows years of house price increases for the Bedfordshire town, which benefits from its easy commute to London and proposals for £1.5 billion investment over the next 20 years.

For those lucky enough to purchase a property in Swindon, another commuter hub, in the last year they will have seen the best return on their investment, with average property prices having increased by 12 per cent to £220,000. However, this increase has had an impact on the affordability for prospective buyers, who will have seen the average property price rise by £24,000 in just one year, reducing the number of neighbourhoods that are deemed affordable by almost half (59% in 2016 down to 37% in 2017).

Popular commuter hub Reading is one of the least affordable locations for first-time buyers in the UK, with average property prices being £304,975 and with no properties currently in areas considered affordable to first time buyers in the region (compared to just 5 years ago when 67 per cent were affordable).

Ross Hunter, continued:

“Due to house-price growth outpacing the average wage increases of first-time buyers, properties are slightly less affordable than they were a year ago. In areas of relatively strong house price growth, such as the Midlands and Southern England, for instance, prices increased between 2% and 3% in 2017, despite first time buyer income being broadly flat.

“However, first-time buyers should not be disheartened. There is still a large number of areas with high-levels of affordability if FTBs are willing to search. There are even cities around the UK that have become more affordable for first-time buyers over the last year, such as South Tyneside, Barnsley and Rotherham.”

Top tips for people saving towards their first home

Cut back on the essentials – the easiest (and most common) way people manage to set more money aside when saving for their first home is finding ways to cut down on their day-to-day spending. This could be as simple as switching to supermarket basic brands, comparing energy and mobile providers to see if you could reduce your bill or even seeing if it’s possible to reduce your rent by moving to a less expensive property.

Map out a deposit goal and stick to it; particularly if putting aside money with a partner – very few people save without assistance from their loved ones and first-time buyers will often be planning to purchase their home with a partner. Be sure to agree how much you can both commit to save realistically on a monthly basis and hold each other accountable, so it’s more difficult to splurge. Look for tools that may help you, there are a range of apps and calculators freely available to help you plan your savings journey, such as the Post Office online tool: www.postoffice.co.uk/mortgages/this-is-my-home.

Can you reduce how much you need to save? – If your goal seems out of reach you could always consider how you might reduce the pot you need to save, such as buying a smaller property, looking at a different location or considering no-deposit mortgages.

Have an honest conversation with loved ones about financial support – it’s common for FTBs to get some degree of financial support from their families as they attempt to get on the ladder – more than half will do so as they attempt to pull the money together for their first home. Be sure that when doing so you have an open and honest conversation about the terms of the agreement. If they are providing you with a gift or a loan and if it’s a loan, being clear on what they expect in terms of regular repayments.

Keep an eye on how affordability shifts and incorporate that into your plan – four years is a long time in our uncertain housing market and you want to make sure you’re aware of how things shift while you save. Be sure to keep an eye on how local property prices change so you can make the most informed purchase possible.

When looking to buy, seek out up-and-coming areas – young buyers often need to adjust their expectations when it comes to location but you can often sniff out which areas are likely to increase in value by looking out for new developments, new businesses setting up shop in the area or improvements in local schools and crime rates.

Don’t be disheartened if you have a set-back – 13% of FTB savers feel like a failure for not reaching their savings goal in the time they initially intended and it’s very common for savers to end up dipping into their deposit fund to pay for other expenses. While it’s obviously best not to make a habit of this, prospective homebuyers shouldn’t let a small slip-up deter them as they continue to save towards their goal.

About the Post Office

Post Office Limited has an unrivalled national network of over 11,600 branches across the UK, more than all the high street banks combined, and sits at the heart of many communities across the country.

It provides around 170 different services and products spanning financial services including savings, insurance, loans, mortgages and credit cards. Post Office also offers Government services, telephony, foreign currency, travel insurance and mail services.

99.7% of people live within three miles of their nearest Post Office outlet. For many rural communities the Post Office is the only retail outlet. Post Offices remain highly valued and trusted and are the focal point for many communities. For more information, visit www.postoffice.co.uk.

Author: editorialassistant

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