First time buyer deposits rise steeply

Lower stamp duty bills for new purchasers are causing first time buyer deposits in the UK to go up by 15% a year, according to a recent analysis.

The Wimbledon estate agents Robert Holmes, have said that the average deposit was £29,127 in January, which is an increase of 7% in comparison to December 2014, with first-time buyers saving the largest amount for their deposit since July 2013, a year and a half ago, as savings from December’s stamp duty changes come into effect.

Much Awaited Stamp Duty Reforms

Chancellor of the Exchequer George Osborne announced long-awaited reforms to the ‘slab’ stamp duty system at the end of last year. These revisions will benefit some 98% of buyers. These changes have reduced upfront costs for lots of first-time buyers meaning they can use the extra available cash to build their deposit. The average first-time buyer paid around £1600 before the graduated system was introduced, which saves them roughly £900.

In the report it was also said that rising purchasing power is reflected in the average first-time buyer Loan-to-Value (LVT) ratios, and that these have fallen 1.1% over the latest three months; indicating that deflation and increasing wages are allowing first-time buyers to save up larger deposits.

First-time buyer homes have in turn increased in price, with new buyers paying an average of £160,304 in January. This is up 12% in comparison to a year ago. Deposits are now 75.4% of a first-time buyer’s income in comparison to 70.6% a year ago.

However, whilst stamp duty has saved first-time buyers money that they can invest in their property, house prices have been given an upwards push due to the changes. Previously, the property values would cluster around the thresholds, but now people can simply ask for more (ie it makes no difference now if a property is worth £250,000 or £250,001).

The report was written by Adrian Gill, a director of estate agents Your Move and Reeds Rains Your Move who said: “A fusion of economic factors is alleviating some of the financial burden of forming a deposit. Wages are starting to recover and inflation has fallen to a record low, meaning buyers have slightly more cash to play with day to day. Stamp duty fees were slashed for many new buyers when the government reformed the old slab system, freeing up further funds. It’s still difficult to save, with savings rates tied closely to the low base rate. But it’s easier to put cash aside than it was a year ago.”