Millions of working renters remain unable to buy their first home despite UK house prices recording their first annual fall in nearly three years, according to rent-to-own provider Own Homes.

The latest Lloyds House Price Index showed house prices fell by 0.4% year-on-year in August, the first annual decline since November 2023. Prices were also down 0.2% on the previous month, taking the average property price to £298,468.

However, Own Homes argues that lower property prices do little to address one of the main obstacles facing aspiring first-time buyers – raising a deposit.

Research from the Resolution Foundation found that around half of Britain’s 8.3 million potential first-time buyers have sufficient income to afford mortgage repayments on a starter home, but only 15% have enough savings to provide a 5% deposit.

Separate research from the Home Builders Federation estimated that a first-time buyer living in the private rented sector takes an average of 13 years to save for a deposit.

The Resolution Foundation has also estimated that around 1.1 million families could reduce their housing costs by becoming homeowners but are prevented from doing so because they cannot raise the required deposit.

Chris Lee, founder and chief executive of Own Homes and former lead of Homes England’s Rent to Buy scheme, said: “This is the contradiction at the heart of Britain’s housing market. House prices are falling, but millions of working renters remain locked out of homeownership. And as UK rents reach record highs, they’re already often paying out more than a mortgage each month.

“If you can afford the monthly cost of owning a home but are told you need another five or ten years to save a deposit, homeownership remains effectively out of reach. This too often puts lives on hold and stops working families putting down roots, which has a real impact on the strength and stability of our communities.”

Own Homes is calling for greater collaboration between government, housing providers, investors and private capital to develop alternative routes into homeownership for households that do not qualify for social housing but cannot access conventional homeownership.

Lee said: “The Government can’t do this on its own. But it doesn’t need to fund the solution either. We have a real opportunity to create a collective framework that allows responsible private capital, housing providers and investors to do more – using their capital and expertise to expand credible routes into homeownership.

“Planning reform, land regeneration and social and affordable housing policies don’t support the ‘missing middle’ – those working households who are neither in need of social housing, nor able to access conventional homeownership – to make their first step into a home of their own.

“Through the newly formed National Housing Bank, the Government has the opportunity to support new and innovative ways of helping those aspiring homebuyers by supporting business such as Own Homes that are making homeownership more accessible for many that have simply given up on their dream of owning.”

Own Homes said rent-to-own could provide one route around the deposit barrier by allowing households to build towards purchasing the property in which they live.

Under its model, part of a household’s monthly housing payment contributes towards building the deposit required to buy its chosen new-build property. Homes can be valued at up to £600,000, subject to regional variations.

Eligible working households with incomes above £45,000 can work towards buying their property over a period of three to five years without providing an upfront deposit.

Lee added: “We need to think differently about tackling the deposit barrier. If someone is already paying hundreds of pounds every month for a roof over their head, it’s unfair to be left with nothing to show for those payments. We need to create more responsible pathways towards homeownership, and our rent-to-own model bridges this gap.

“Our collective ambition should be simple – to turn the money people are already spending on rent into a pathway to owning their own home, not leaving them trapped in a cycle of renting.”

Own Homes also warned that working households caught between social housing and conventional homeownership risk becoming a “housing policy blind spot”.

Lee said: “Social housing is vital for those who need it. But there is another huge group falling through the gaps – working people and families who are already paying for a home but can’t save for a deposit at the same time. They don’t want to depend on social housing. They want to own their own home we must provide them with a realistic route to get there.

“By removing the deposit barrier, we’re not only helping more people to become home-owners – we’re also unlocking demand for new homes, supporting housebuilders, stimulating economic growth and helping the Government to deliver the homes the country urgently needs.”

Own Homes plans to generate 100,000 first-time home purchases by 2031. The company has collaborated with Lloyds Bank on its savings product, while Aviva provides home insurance.