How will our children ever afford their own home?

Buying is cheaper than renting!
17 Jan 2016
UK households underestimate the annual cost of bills
31 Jan 2016
Buying is cheaper than renting!
17 Jan 2016
UK households underestimate the annual cost of bills
31 Jan 2016

How will our children ever afford their own home?

How will our children and grandchildren ever afford to own their own home?

If you look in the window of your local estate agents they are most likely full with property adverts, but around a third will already have the ‘sold’ sign across the middle.

You find the cheapest, but it’s in a retirement complex so you’ll have to wait until you’re over 55. There are some leasehold flats within your budget, but most of them are already sold.

The rest are three or four bedroom family homes, mostly above £200,000, way out of budget.

You ask inside to see if they have anything else on offer, you’re told they have nothing suitable for first time buyers in your price range as ‘prices are going through the roof’.

And that’s it for properties under £200,000. The rest are three or four-bedroom detached houses, between £250,000 and £500,000.

You decide to move on to the next estate agents window, which also tells a similar story. There isn’t much on offer, and in areas which are in prime locations for commuters, schools etc. demand is even higher.

There are many regions across that have no reasonably priced homes. And that’s not just in main cities. There are pockets in the West Midlands, Yorkshire and the Humber that have no affordable homes with at least three bedrooms.

This could be the beginning of a first-time buyer crisis, which could result in many of the younger generation never being able to own a home. It may become that only investors can afford to buy and the rest of us will have to rent from them, which also leads the question ‘How will we continue to do this in retirement?’

Is the property boom coming to an end?

At first glance, the housing market appears to be moving along quite nicely. Prices are up on last year, according to the Land Registry, and sales this summer have been good. In the past year, the average house in England and Wales has increased in value by £9,252 to £181,619. Estate agents are seeing record numbers of house hunters visiting their branches, but while there is obviously a demand, the lack of properties for sale is starting to upset the market.

Following the banking crisis in 2007, the number of first-time buyers dropped by 160,000 a year, but since then it has started to climb steadily. However, now the average age of these buyers and the amount they are borrowing are also increasing.

The average income of first-time buyers is a record breaking £37,380, as is the amount they are borrowing as a multiple of this wage which is 3.4 times.

As well as this, figures from the English Housing Survey suggests that, of the 312,300 who bought a home for the first time in 2014, many had to rely on an inheritance to get onto the property ladder — that’s 8 per cent of all buyers.

And around one in four had to ask for help with a deposit from their family, a rise from one in five a decade ago.

Today, only a fifth of first-time buyers are single — while ten years ago, almost a third were buying on their own.

Even with help, getting a mortgage is not easy!

According to the latest English Housing Survey, since the recession, the average deposit a first-time buyer needs to secure a loan has increased from 10 per cent to 25 per cent. Also, a typical mortgage term used to be 25 years, now more than a third of new buyers are taking out mortgages lasting 30 years or more.

Six years of low interest rates, which have helped many get on the property ladder, will soon come to an end, which could make things even worse for first time buyers.

At the end of last year, Bank of England governor Mark Carney warned interest rates could rise as early as the start of this year.

Many of the cheaper deals are disappearing and, when costs rise, it will more than likely push homes that look affordable today unreachable.

In England, out of 18,678 advertised homes, only one in every 13 were affordable for single people.

It is predicted that, within ten years, more than half of all households under 40 will be renting from a private landlord because they can’t afford to buy a home of their own.

The buyers with no hope of owning

The number of 16 to 24-year-olds renting has dropped in the past year. But while this may seem encouraging, experts say it is more likely that many have moved back with their parents rather than continuing to rent.

The average home has increased by almost £20,000 in five years. Prices are simply rising too quickly for a lot of first-time buyers to save enough for a deposit.

Even in parts of the Midlands, prices are climbing. In the past four years, the average house price in Warwickshire has jumped 13 per cent from £20,992 to £181,321.

The Government has recently introduced the Help to Buy scheme, which aims to boost the deposit for young people.

However, it’s done very little to ease the pressure on house prices.

The average price of homes being sold under Government schemes designed to help first-time buyers is £189,786 according to Halifax — which is higher than the national average. And those who bought homes in London through affordable housing schemes ended up paying an average of £323,148.

We need 100,000 more homes a year

It is thought that the increase in house prices is due to lack of supply. We build 100,000 fewer houses than we need each year, according to Shelter.

The Government is attempting to relax planning rules to make it easier for developers to build more homes, who are often stopped in their tracks by older generations desperately trying to protect the countryside from over-development.

So desperate has demand for more affordable homes become that around one in six first-time buyers are resorting to buying run-down properties that require huge amounts of renovation, just so they can own something.

But it is saving for a deposit that is causing the most problems, with the cost of renting is also increasing at record pace it has become more difficult than ever.

Currently, renters are paying an average of £789 a month, compared with £660 five years ago, according to LSL Property Services. In London, it’s £1,241 a month.

This means buyers are having to wait longer to get on the property ladder. The average age of first-time buyers taking out home loans in Britain is between 30 and 32.

For some, it could take up to ten years to save for a big enough deposit to get an affordable mortgage. This is why so many are having to rely on help from family.

Post courtesy of This is Money.

Speak to our Friendly Experts