Average deposits for house purchases using the Help to Buy mortgage guarantee (HTB2) reached a 10 month high in February according to new data from Mortgage Advice Bureau – the UK’s best known broker brand.
Buyers using the scheme in February put forward an average deposit of £9,936, up by 9.2% from £9,099 in January. It meant HTB2 deposits reached their highest point since April 2014 when they stood at £11,438.
Average HTB2 deposits have now risen for three successive months from a low of £7,856 in November 2014. This has added more than £2,080 to the typical sum needed to support a house purchase through the scheme.
However, Mortgage Advice Bureau’s analysis shows how the upcoming HTB ISA will provide a significant boost by cutting the time needed to save the average deposit.
The saving scheme – which will see government contributing £50 for every £200 saved by first time buyers up to a maximum of £12,000 –could help a savvy first time buyer couple to build up the average £9,936 deposit in just 15 months: ten months faster than if they were saving on their own at the same rate.
Under the ISA arrangement, the government bonus (which effectively boosts savings by 25%) would supply £1,987 of this sum at the end of the savings period. This means that by saving only £7,949, a customer could build up the full £9,936 deposit required for an average HTB2 mortgage.
A first time buyer couple who both make use of the HTB ISA and save the maximum allowance of £200 each per month could reach the £7,949 target in less than two years (20 months), compared with 25 months if they tried to save the whole £9,936 at the same rate without government support.
By each contributing the maximum £1,000 when they first open an individual HTB ISA, they could take another five months off this timescale, reducing their total time saving by ten months. This would leave them needing just 15 months to hit their deposit target. If they started saving in October 2015, they would hit their goal by December 2016.
This timescale could be reduced even further by the interest their savings would accrue and by supplementing their HTB ISA pot with additional savings.
Mortgage Advice Bureau’s data shows the average HTB2 customer has a salary of £30,185. Someone with this level of income would need to put aside just 10% of their net monthly salary (£1,967) to make the maximum £200 monthly contribution to the HTB ISA.
Brian Murphy, Head of Lending at Mortgage Advice Bureau comments:
“Help to Buy’s importance to easing affordability pressures is plain to see: the average deposit of those using the scheme remains far below those found in the wider marketplace*, giving first time buyers access to the housing market in a far shorter timescale than would otherwise be possible without parental help.
“The HTB ISA will provide a further boost to first-time buyers, with the government effectively pledging to contribute a fifth of their deposits up to £15,000. By paying a modest 10% of their savings after tax into a HTB ISA, a couple would be able to reduce the time they need to save for a deposit by as much as nine months.
“The arrival of the new ISA scheme will be another step towards make homeownership a realistic goal for first-time buyers on average incomes.”