There is a real lack of understanding around the house buying process and the associated costs amongst those looking to buy their first home in the UK, according to new research.
Nationally first time buyers underestimate the deposit they need by £15,388 or 31% but this rises to an underestimate of £75,000 for people buying their first home in London where prices are so much higher than other parts of the country.
The first time buyer index report from Aldermore also shows that a deposit is the top obstacle for 34% of first time buyers while 40% overspend by £2,334 on other costs such as solicitors and home surveys.
The report points out that first time buyers aim to save an average of £34,397 for their deposit but in reality the average deposit needed is £49,639 according to figures from the Office of National Statistics (ONS), meaning many first time buyers will be faced with a substantial deposit deficit of 31% equating to £15,388.
When examining this trend across the regions, this disparity is particularly evident in London. First time buyers looking to buy in the capital are aiming to save an average of £48,000 when in fact official figures show the average deposit is more than double at £123,000 which would leave them £75,000 short.
Prospective first time buyers are also under estimating the amount of time it will take them to save for this deposit. Some 58% believe they will be able to reach this goal within five years while in reality just 51% of recent first time buyers reached their goal in this time and for 16% it was over eight years.
When it comes to all the additional costs associated with buying a home, extras such as solicitor’s fees and stamp duty, 32% don’t know how much all of this costs. For those who have recently managed to get on the property ladder 40% spent more than expected on these extra costs, by an average of £2,334.
First time buyers also have to take into account the potential costs of a property purchase falling through. Almost half, 47%, of first time buyers who bought this year experienced the collapse of a property purchase, at a cost of £1,305.
More broadly, over a quarter of those, 26%, who bought over the last three years have also experienced this, evidencing just how exposed first time buyers are within the current housing environment.
The research also found that in the second quarter of 2017 17% of recent first time buyers took three or more attempts to buy their home and the process of buying a first property caused so much stress that 35% said they became ill.
‘It is clear there is a divergence between perception and reality when it comes to the house buying process. This often means those looking to buy are under estimating the associated costs as well as the time it could take to complete, especially with first time buyers expecting it to take four years on average to save for a deposit,’ said Charles McDowell, commercial director of mortgages at Aldermore.
‘This lack of understanding clearly has financial implications but it can also take its toll emotionally. Some have suggested that cutting stamp duty for first time buyers in the Autumn Budget would be welcome. As it stands, first time buyers are systematically let down by an overly complex, opaque and costly system,’ he pointed out.
