A new government-backed deposit scheme could provide a route onto the housing ladder for up to one million first-time buyers, according to analysis from the Resolution Foundation.
The think tank’s latest report examines the sharp decline in home ownership over recent decades and identifies the key barriers preventing working households from buying their first property.
It finds that low- and middle-income families have experienced the steepest drop in home ownership since 2008, falling by 17.4%, compared with a decline of just 4% among higher-income households.
The research focuses on around eight million ‘potential’ first-time buyers aged between 21 and 55 who are in work but do not own a home. While half would meet typical income requirements for a starter property, only 15% would be able to meet deposit thresholds.
Saving for a deposit remains a significant obstacle. The report suggests a typical buyer would need five years to accumulate a 5% deposit, while 1.7 million would face a savings period of more than a decade.
This challenge has increased reliance on family support, with around one in three first-time buyers turning to the so-called Bank of Mum and Dad. However, the report warns that this route is not available to all and risks widening inequality.
DEPOSIT BARRIERS IN FOCUS
While recent regulatory changes have improved access to mortgage lending for some borrowers, the report cautions against broad relaxation of lending rules. It highlights that repayment burdens for first-time buyers remain elevated, comparable to levels seen in the early 1990s and mid-2000s.
Instead, the Foundation argues that policy should focus on targeted support for those who would benefit most from home ownership.
It proposes a ‘Starter Deposit’ equity loan scheme, under which the government would provide a loan to cover a deposit, supplemented by up to £3,000 from the buyer.
The scheme would be aimed at so-called ‘priority’ first-time buyers — households who would see both lower housing costs and improved living standards through home ownership.
According to the analysis, a typical household using the scheme could reduce annual housing costs by £2,600 compared with renting, while building £1,700 in housing equity within the first year.
TARGETED APPROACH
To limit inflationary effects on house prices, the proposed loans would be capped at 5% of the lower-quartile price for terraced homes in each region.
This would support purchases of up to £175,000 in the North West and £325,000 in London and the South East, ensuring the scheme remains focused on more affordable segments of the market.
The report suggests this approach would avoid some of the shortcomings of previous initiatives such as Help to Buy, where support was not always effectively targeted and in some cases enabled buyers to purchase more expensive properties.
Simon Pittaway, senior economist at the Resolution Foundation, said: “The dream of owning a home is a distant one for many people today, with home ownership rates falling particularly fast for low-and-middle-income families.
“The main barrier to home ownership is finding a deposit in today’s world of sky-high house prices. Building more homes in the right places is needed to relieve this underlying price pressure, but that will take time.
“In the meantime, many rely on the Bank of Mum and Dad for support. But this leaves behind those who don’t have wealthy parents to help them and fuels inequality within generations.
“We identify around one million ‘priority’ first-time buyers who would enjoy lower housing costs and higher living standards if they were able to get onto the housing ladder.
“For these families a new, targeted ‘Starter Deposit’ equity loan scheme would deliver this double win by providing the 5% deposit they need.”
The findings add to ongoing debate around how best to support first-time buyers, with policymakers balancing affordability concerns against the risk of further stimulating house price growth.
While the proposed scheme would not address underlying supply constraints, the report positions it as a targeted, interim measure aimed at those currently locked out of home ownership despite having the income to sustain mortgage repayments.
