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How much do first-time buyers need to earn to afford a home?

  1. 11 July 2019
  2. By Andi Michael

We all know that first-time buyers spend years saving deposits to get on the property ladder. But how much does the average first-time buyer actually need to be earning before home ownership becomes a realistic goal?


Recent research from property website Zoopla sought to answer this question. Below, we take a closer look at the findings as well as analysing the ways in which the government has tried to help this demographic to achieve their home-owning ambitions.
 
Nearly £55,000 to secure a home
 
The Zoopla research – a map which revealed the salaries needed to buy a first home across the UK – found that the average first-time buyer, or couple buying, requires a household income of £54,400 to secure a mortgage on their first property. The picture, however, varies considerably across the country – from an average of £84,000 in London to £26,100 in Liverpool.
 
The findings, which showed the typical income needed to purchase a home in 20 of the biggest UK cities, highlighted that the income needed to buy a property is nearly double the average yearly wage in Britain. As a result, many first-time buyers simply have no choice but to join together with a partner, relative, or even friend to purchase their first home.
 
What’s more, buying a first home isn’t getting any cheaper, according to the figures – in fact, it’s getting rapidly more expensive. Ever-rising house prices mean the deposits put down on a house and the salaries needed for a mortgage have both increased, too.
 
Now, for example, a prospective first-time buyer typically needs to earn at least 9% more than they did even three years ago to get on the housing ladder – with the required household income of £54,400 to buy a first home some £4,500 greater than in 2016. The average deposit required, meanwhile, currently stands at £38,418.
 
Despite the overall rise in household income needed to purchase a home, there are some places where this hasn’t been the case – with some locations witnessing a fall in the average salary needed to buy a property. This includes, perhaps surprisingly, London, where a combination of cheaper mortgage rates and a fall in prices has made matters slightly easier on first-time purchasers.
 
That said, however, first-time buyers in London are still at a distinct disadvantage when it comes to capitalising on these improved buying conditions given they need to raise a hefty average deposit of £119,000.
 
Have a look at our First Time Buyer Deposit Generator to show you just how many treats you'd have to sacrifice to save a deposit in your region.

Regional variations
 
There is a huge difference when it comes to the average income needed to buy a typical first-time buyer property in London and Liverpool, with Londoners needing over £57,000 more in salary than their counterparts in the North West.
 
However, despite it being the most affordable market for first-time buyers to enter in terms of salary, Liverpool has registered the highest price growth of all the areas analysed – suggesting that first-time buyers in the city might find it more difficult as the years pass by.
 
The level of income needed to buy, meanwhile, is increasing at its sharpest in the Midlands, with the average salary required in Nottingham rising to £32,900 – some 18% higher than in 2016. Similarly, in Birmingham buyers now need a household income of £35,200, 19% higher than three years ago.  
 
In fact, the majority of the UK’s major cities now require a higher salary to get on the property ladder than they did in 2016, with Aberdeen, London, Oxford and Cambridge the only exceptions.
 
In the UK’s three most expensive cities – London, Oxford and Cambridge – the average salary needed to buy has decreased by an average of 5% since 2016, with Londoners now needing a household income of £3,250 less than three years ago to buy a home. Nonetheless, despite this fall – as well as slight price declines and weak growth in the capital – London is still a very expensive place to buy a home, as an average deposit of £119,000 and an average price of more than £471,000 attests to.
 
Likewise, the income required to purchase may have fallen in the famous old university cities of Cambridge and Oxford – down by 5% and 3% respectively – but these cities still required the highest incomes of anywhere outside of London and have relatively high average house prices.
 
Aberdeen, on the other hand, recorded the largest fall in the level of income needed to buy of 12% - mostly as a consequence of sharp price drops in the city since 2015. The city’s property market, which is highly dependent on the oil industry, has been badly affected by falling oil and gas prices in recent years. But it may represent an ideal opportunity for first-time buyers – with both cheaper house prices and a reduction in the income required to buy.
 
How has the government tried to help?
 
With figures suggesting that first-time buyers account for more than one in three sales, first-time buyers have become a key target for politicians and housebuilders in recent years – with successive governments vowing to improve this demographic’s chances of getting on the ladder.
 
A number of initiatives have been launched to offer assistance, including:
 
Help to Buy ISA
 
The Help to Buy ISA, introduced by the government in 2015, is offered by a large number of banks and building societies – offering a potential 25% boost to a first-time buyer’s savings.   
 
For every £200 saved in a Help to Buy ISA, you receive a government bonus of £50. The maximum government bonus is £3,000 and the minimum is £400.
 
The ISA, which will only be available until November 30 2019, has been criticised for not allowing first-time buyers to access their bonus until after the house purchase has been completed – in other words not really helping buyers to buy at all, given it can’t be used towards a deposit.
 
Help to Buy: Equity Loan
 
In this scheme the government lends first-time buyers up to 20% of the cost of their newly-built home, meaning buyers only need a 5% cash deposit and a 75% mortgage to make up the rest. In London, reflecting the higher property prices at play, the upper limit for the equity loan is 40%.
 
Buyers are not charged interest on the 20% or 40% loan for the first five years of owning their home.
 
The scheme, launched in 2013, has faced criticism for artificially inflating house prices and the problems now being faced by the early adopters. It has also been criticised for not doing enough to help those from lower-income backgrounds.
 
It was recently revealed by the government that Help to Buy homes will no longer be sold as leasehold following outcry over the leasehold crisis which has come to attention in the last few years.
 
The scheme was originally supposed to end in 2021, but was last year extended to 2023 – however, from April 1, 2021 it will be restricted entirely to first-time buyers, with regional price caps also introduced.
 
Shared Ownership
 
Another part of the government’s overarching Help to Buy scheme, Shared Ownership offers first-time buyers who can’t quite afford the mortgage on 100% of a home to instead purchase a share in a home (between 25% and 75% of the property value) and pay rent on the remaining share.
 
First-time buyers are eligible if their household earns £80,000 a year or less outside London, or £90,000 a year or less in the capital.
 
All shared ownership homes are leasehold, but with the government’s recent announcements regarding a crackdown on unfair practices in this sector, buyers may not find themselves as affected. Our in-depth guide to Shared Ownership explains more.
 

Lifetime ISA

The Lifetime ISA (or LISA) was launched in April 2017 as a way of helping savers save for a first home or for their retirement.
 
A tax-free account that enables you to save £4,000 a year and receive a 25% state bonus at the end of each tax year until you reach the age of 50, the Lifetime ISA has still yet to be offered by any major lenders.
 
Only three regional providers – Skipton Building Society, Nottingham Building Society and Newcastle Building Society – currently offer a cash-only ISA, while other providers offer an investment Lifetime ISA.
 
But it’s failed to have the same mainstream impact as its sister Help to Buy version.
 

What can you do as a first time buyer?

Your annual wage needed to purchase a property will depend on two things:
  • how much the property costs
  • how big your deposit is
Mortgage lenders are usually happy to lend 4.5 times your annual income. If that isn't enough, you may need to consider moving to a cheaper area, increasing your deposit (so the amount you need to borrow is less) or using one of the government schemes.

Have a look at our guides to help increase your deposit:

- Starting Saving 
- Sacrificing to Save
- Supersizing your savings
 

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