The government’s scheme to turn generation rent into generation buy is failing to help most single first-time buyers on an average salary and with a 5% deposit, Rightmove analysis has found.

The mortgage guarantee scheme, which came into effect in April 2021, aims to support banks and building societies to offer 95% loans, meaning that buyers only have to raise 5% themselves.

The scheme is designed to help first-time buyers and movers struggling to raise large deposits. Even before it launched, some lenders came forward with 95% deals, and on Monday another 38 mortgages were launched.

However, analysis by Rightmove has revealed that many single buyers on the UK median wage are still locked out of buying a home in many areas, with the majority unable to afford three-quarters of properties for sale in the typical first-time buyer market.

Homes in this typical first-time buyer market include studio flats and one and two-bedroom flats and houses – smaller properties that are a popular first step to getting on the housing ladder.

The analysis is based on a first-time buyer having a maximum budget of £164,810. This is based on being able to borrow £156,569 from a lender (4.5 times the average national salary of £34,793, ONS figure) and having a 5% deposit of £8,240.

Single first-time buyers in the capital are hardest hit, being able to afford just 2% of studio, one and two-bedroom properties with an average London salary and a 5% deposit, compared to the North East, where solo first-time buyers could afford 67% of properties.

Westminster, Islington and Camden in London top the list of areas where a single first-time buyer could afford the smallest proportion of typical first-time buyer homes for sale on the average local salary.

Generally, 95% mortgage rates are usually higher than those for other loan-to-value (LTV) brackets. The lowest available five-year fixed 95% mortgage rate is currently 5.59%, while the equivalent lowest 85% mortgage rate is 4.99%.

Based on a maximum budget of £164,810, a buyer with a 5% deposit would repay £970 per month over 25 years, compared with £818 per month for a buyer with a 15% deposit.

If extending the mortgage term to 35 years, this reduces payments to £850 per month with a 5% deposit, and £706 with a 15% deposit.

Meanwhile, average advertised rents are now 10% higher than this time last year for new tenants across Great Britain, while the average rent for a studio, one or two bedroom home now makes up 38% of the average salary, making it challenging for those looking to move from the rental market to owning their first home, particularly for a single buyer.

However, for those able to buy with a partner, friend or family member, options greatly open up to those with a small deposit. Two first time buyers on an average salary could afford 70% of smaller properties across Great Britain with a 5% deposit, due to the increased borrowing power.

Last week there were reports that the government was considering extending the 95% mortgage guarantee scheme that helps people with a 5% deposit to buy a home.

Whilst any support is likely to be welcomed by small-deposit movers, Rightmove suggests that as this scheme can only help a small proportion of people then more options could be considered, especially those that would help people buying on their own to get their first step on the property ladder.

Rightmove’s Tim Bannister said: “Having enough affordable homes in the right places has been an ongoing challenge. It’s clear from our analysis that people trying to buy on their own on the average salary are likely to be priced out of the majority of homes without significant financial help from elsewhere. With the Autumn Statement fast approaching, the government is likely looking at multiple options and how they could help home-movers, and so we wanted to highlight that this group would particularly welcome any help or incentives.”

Matt Smith, Rightmove’s mortgage commentator, added: “Any focus and support for those with the smallest deposits is always going to be welcome. However, in reality the mortgage guarantee scheme is only able to help a very small portion of movers, with the majority of first time buyers preferring to get the affordability benefits of saving for a bigger deposit . If the scheme was cancelled then it may be seen as a disappointing outcome by some, but in reality it’s unlikely to have a significant impact on consumer choice, as many lenders are offering 5% deposit deals outside of the government scheme.”

Regional data (data based on October 2023)

Most affordable areas for single first-time buyers (data based on October 2023)

Most unaffordable areas for single first-time buyers (data based on October 2023)