Average-income households ‘would take 22 years’ to save for a deposit

The acceleration of housing costs compared to the rise in incomes means potential buyers take longer to save for a deposit, creating a nation of renters, according to research by the Resolution Foundation.

It found that the average low to middle income (LMI) household would take 22 years to save the typical deposit paid on a first-time buyer home today.

Twenty years ago the average household with two incomes and one child spent 17% of their income on housing. By 2015 this had risen to 21%, equivalent to £1,500 or a rise of 10p in basic rate income tax.

Although low interest rates have offset low wage growth to some degree, house prices and rents have risen far faster than wages, especially for LMIs in south-east England.

Their share of income spent on housing since 1995 went up from 18% to 26%, while higher income households saw the proportion rise from 14% to 18%.

LMI ownership has dropped from 73% in 2000 to 55% in 2014, while higher income ownership fell from 88% to 76%. Benefit-reliant households saw a drop in home ownership levels from 25% to 20%.

In London, the average household spends 28% of its income on housing. Scotland and the north-west of England have also seen sharp increases.

Lindsay Judge, senior policy analyst at the Resolution Foundation, said: “Spiralling house prices and stagnating wage growth created a growing wedge between housing costs and incomes, which peaked on the eve of the crash.

“Falling housing costs helped soften the living standards squeeze for many households during the downturn. But these costs are rising again and risk holding back the living standards recovery.”

In 1999, the average first-time buyer property cost 3.9 times the average LMI household income. This went up to 7.1 times in 2007. It then fell but is predicted to rise to 6.7 times by 2020, 83% higher than in 1983.

The report says the Help to Buy scheme “appears to be having relatively little bearing on LMI opportunities,” instead “providing a welcome leg-up for those who would eventually get on to the housing ladder anyway”.