Despite 70 per cent of potential buyers claiming to actively save for their deposit, three out of four (75%) admit they have outstanding debts. On average, a prospective first time buyer is in the red by £5,860.
Stephen Leonard, Director of Mortgages at Alliance & Leicester said: Our research reveals that while many first time buyers are diligently saving for their deposit, some are not being as financially frugal as they could be. Whilst buying a house can seem like a top priority, those looking to buy for the first time will find it worthwhile to pay off their outstanding debts first.
Londoners are surprisingly prudent when it comes to managing borrowed money. Despite the expensive lifestyle that the capital is renowned for, they have a lower amount of debt, at £5,350, when compared with the most indebted region. Those in the West Midlands have the most debt at £6,870 per potential first time buyer with those in the East of England in debt by £4,210 each.
On average men have more debt than women with debts of £6,290 while women typically owe £5,400. And it is those in their later 20s (25 29 year olds) who are in the most debt, owing £6,000 on average. Only 24 per cent of potential first time buyers say they are completely debt-free.
With so many potential first time buyers in debt even before they have purchased their first home, it is perhaps unsurprising that nearly a third of would-be homeowners (30%) admit to not saving a penny towards their deposit – despite having aspirations of getting onto the housing ladder in the next two years. On average they pay nearly £200 a month toward credit repayments in contrast to those saving to get on the ladder who are putting aside £270 a month.
Stephen Leonard said: Many lenders now use affordability calculations to determine how much they can lend someone and these calculations take into account outstanding debt and reduce the loan amount on offer accordingly. Its important to keep up with your payments as any missed payments or defaults could impact on your ability to get a mortgage later on.
I would urge first time buyers to be pragmatic about getting onto the housing ladder if they have outstanding debts. It would be advisable to try to avoid unnecessary debt and look to pay off any outstanding debts before they start saving for a deposit.
