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Media centre / Press release FIRST-TIME BUYERS NEED TO SAVE FOR RECORD TIME TO GET ON THE PROPERTY LADDER 01 June 2005 It is now harder than ever for...

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Press release FIRST-TIME BUYERS NEED TO SAVE FOR RECORD TIME TO GET ON THE PROPERTY LADDER 01 June 2005 It is now harder than ever for first-time buyers to get on the property ladder, taking a record four years and nine months to save for a 5% house deposit – three months longer than just six months ago and nine months longer than a year ago, according to research from National Savings and Investments (NS&I), the government-backed savings and investment provider. Worst affected are first-time buyers in East Anglia, where saving for a deposit is taking a record five years, compared to 4 years and 6 months in 2004 Q3 – an increase of six months (see table 2). Even first-time buyers in the least affected area of Scotland are facing a 7% increase in the number of years it takes to save a deposit, up from three-and-a-half years six months ago, compared to three years and nine months now (see table 2). With the average first home now 16.5%* more expensive than a year ago and the typical first-time buyers’ income increasing by only 0.5%** in the same period, it is harder than ever for those who want to get a foothold on the property ladder. Dax Harkins, senior savings strategist at National Savings and Investments, comments, “Despite a recent cooling house market, house prices have continued to outstrip both savings rates and incomes over the last year which means potential first-time buyers need to start saving sooner and harder to get into the market. “ Table 1 Period

Price of typical FTB home

Deposit required (5%)

Time to save for deposit for typical FTB home (years)

Q1 2005

£147,127

£7,356

4 yrs 9 mths

Q3 2004

£143,743

£7,187

4 yrs 6 mths

Q1 2004

£126,341

£6,317

4 yrs

Q1 1994

£49,021

£2,451

2 yrs 9 mths

In the first quarter of 2004, it took four years to save up a 5% deposit (see map) on a typical first home in the UK. A typical starter home cost £126,341*, and the deposit needed was £6,317. Today the average price of a first-time buyer home is £147,127* (see map) and the 5% deposit required is £7,356 – just over £1,000 more than was required a year ago. The combined average income for first-time buyers is currently just under £33,000**. Future optimism Although the situation remains tough for first-time buyers, a cooling house market offers a chance to ease their burden. House price inflation has slowed in the past six months, with prices rising just 2.4% from £143,743 in 2004 Q3 (see table 1) and there has been a stabilisation in the time it takes to save a deposit in some regions. Between 2004 Q3 and 2005 Q1, the time taken to save for a deposit remained static in London, the South East and the South West. House prices in these regions have seen the lowest levels of inflation in the UK, and house price to earnings ratios have only seen small increases in the past year. If these trends continue to spread across the UK, the time required to save for a deposit could reduce in the coming months. Across the UK There are strong regional variations across the UK in the time it takes first-time buyers to save for a deposit (see map). It takes longest to save in East Anglia, where the average first-time buyer has to save for five years to build up the 5% deposit – an increase of six months from 2004 Q3. Higher house prices in the South and London have pushed up the average national house price to £147,127. However the higher incomes in the South and London have not boosted the average national income to the same level resulting in a high UK average for the time taken to save for a 5% deposit – four years and nine months. Buyers in Scotland save for the shortest amount of time, with the average first-time buyer taking three years and nine months to raise their deposit – the only region where it takes less than four years (see map). Scotland enjoys the lowest house price to income ratio in the UK, implying that house prices are still relatively affordable for buyers. Northern Ireland has seen the biggest rise in the time it takes to save for deposit – it now takes 9 months longer than in 2004 Q3 for a first-time buyer to save the required deposit. Across the UK the time taken to save a 5% deposit increased by 3 months (see table below).

Table 2 Time taken to save 5% deposit for a typical FTB home Regions

Q1 1994 (years)

Q1 2004 (years)

Q3 2004 (years)

Q1 2005 (years)

Increase from Q3 2004 to Q1 2005 (months)

UK

2 yrs 9 mths

4 yrs

4 yrs 6 mths

4 yrs 9 mths

3 mths

East Anglia

2 yrs 6 mths

4 yrs

4 yrs 6 mths

5 yrs

6 mths

Wales

2 yrs 6 mths

3 yrs

4 yrs

4 yrs 6 mths

6 mths

W. Mids

2 yrs 9 mths

3 yrs 3 mths

4 yrs

4 yrs 6 mths

6 mths

London

3 yrs

4 yrs 3 mths

4 yrs 6 mths

4 yrs 6 mths

No change

SE

2 yrs 9 mths

4 yrs 3 mths

4 yrs 6 mths

4 yrs 6 mths

No change

SW

2 yrs 9 mths

4 yrs 3 mths

4 yrs 6 mths

4 yrs 6 mths

No change

E.Mids

3 yrs 3 mths

3 yrs 9 mths

4 yrs

4 yrs 3 mths

3 mths

NE

2 yrs 3 mths

3 yrs

3 yrs 9 mths

4 yrs 3 mths

6 mths

NW

2 yrs 6 mths

3 yrs

3 yrs 9 mths

4 yrs 3 mths

6 mnths

Y&H

2 yrs 6 mths

3 yrs

3 yrs 6 mths

4 yrs

6 mths

N.Ireland

2 yrs 3 mths

3 yrs

3 yrs 3 mths

4 yrs

9 mths

Scots

2 yrs 3 mths

3 yrs

3 yrs 6 mths

3 yrs 9 mths

3 mths

Accelerated growth outside London and the South caused higher than national average increases in the time it takes firsttime buyers to save in all other regions. With prices in the South slowing and even falling, first-time buyers can expect the time taken to build up a house deposit to stabilise or reduce as the effects of the cooling housing market spread across the country. Dax Harkins continues, “Significantly, over the past six months house prices have remained static in the South and London. Yet, these remain some of the highest levels in the UK and prove a compelling argument to suggest that borrowers simply cannot afford any more, leading to a stabilisation of house prices in the area. “The market in these regions has peaked, and we can predict that these trends will spread across the country as house prices top the affordability levels for their regions and begin to cool. Once house prices stabilise, the combined effect of improved savings rates and increased earnings will shorten the time taken to save a deposit.” (Click here for PDF) Ends Notes to Editors * Average first-time buyer home has rocketed from £126,341 in 2004 Q1 to £147,127 in 2005 Q1. Source Office of the Deputy Prime Minister ** Source: Office of the Deputy Prime Minister and Office of National Statistics Annual Earnings Index Headline rate 3 month average (SA) excluding bonuses. 1. National Savings and Investments is one of the largest savings organisations in the UK, offering a range of savings and investments products to 26 million customers. All products offer 100% capital security. 2. Sources and methodology The research seeks to compare the number of months a potential first-time buyer needs to save to achieve a deposit on a typical property purchased in Q1 2004, Q3 2004 and Q1 2005. It is assumed that first-time buyers save 5% of their income per quarter and place this in a typical building society/ bank savings account, which accumulates interest. The analysis works out the number of months it would take to afford a 5% deposit on a typical first-time buyer property, respectively purchased in 2004 Q1, 2004 Q3, 2004 Q4 and 2005 Q1. Average dwelling prices for first-time buyers in 2004 and 2005 are taken from the Office of the Deputy Prime Minister Housing Statistics Live Table 592. Deposits are worked out at 5% of the first-time buyer prices. Figures for the relevant average recorded quarterly incomes of first-time buyers are also taken from the ODPM Live Table 516 and the Office of National Statistics Annual Earnings Index Headline rate 3 month average (SA) excluding bonuses. Quarterly savings interest rates are derived from Council of Mortgage Lenders statistics for average quarterly interest rates for savings deposit accounts. The analysis is undertaken for each of the 12 major standard economic regions of the UK. House Prices Q1 2004, Q3 2004 and Q1 2005

(Click here for PDF) For further information, digital images, or to arrange an interview call the NS&I media team. Media team NS&I has a number of spokespeople available for interviews and our experienced radio team is available via our ISDN line: 020 7602 4522. The numbers below are for media use only. Customers wishing to contact NS&I can find details here. Gareth Headon Gill Stephens Iman Asante Angela Mason Monica Del-Villar

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