What if there was a way for young people to get their first house without the financial strife? Let’s find out more.
Every year, young people find it harder to buy their first property. The powers that be say they want to promote homeownership to young people, but they have never been able to turn their words into actions. Only this month, another Government scheme has been abandoned and a new one proposed. But, nothing they do ever goes far enough.
In this article, we’re going to look at the reasons why ‘generation rent’ find it so difficult to get on to the property ladder. Then, we’ll look at possible solutions. We need to take a new approach, but with bold ideas and decisive action, we can make it work.
Locked into renting
The situation is dire. Recent research shows that one-third of people in their twenties and thirties may never be able to buy a home in their lives. They will be locked into renting, with all the cost, insecurity and stress that it brings.
While it’s true that renting suits many people, especially while they’re young, there are so many benefits to owning your own home:
- It makes financial sense – you pay your mortgage, but eventually, your home is entirely yours.
- It’s easier to register for medical facilities, schools for children etc. Your home is safer and more secure.
- It’s less stress – your rental landlord can evict you with little notice for any reason they choose. While you can be evicted from your own home, it’s much rarer.
But, the main benefit is that your home is yours and no one else’s. If you want to paint your bathroom neon pink, no one is going to mind!
Why is it so hard, in 2020, for young people to get on the housing ladder? Here are three reasons.
1 – There are not enough affordable homes
The primary reason that young people cannot afford to buy homes is that there are not enough homes that are in their price range.
The average price of a house is around £245,000 and rising by more than 5% per year. Of course, prices vary from area to area, but perversely, cities and towns where young people want to live tend to be even more expensive. For example, the average house price in London is more than £660,000.
Prices keep rising, even in economic downturns, because homes are scarce. The country is not building enough homes to satisfy demand. On top of that, when homes do get constructed, they are often snapped up by people who already own properties, as second homes or buy-to-let properties.
The Government requires housebuilders to designate parts of their new developments as affordable housing, but this only scratches the surface of what is needed.
2 – Saving for a deposit is a challenge
To buy a home, you need to put down a deposit of around 20% of the property’s value. On an average property, that would be £49,000.
That is an enormous sum for a young person to be able to save up. Unless they have help from their family or earn far more than the average wage, you could even say it is impossible. It would take someone on their own more than eight years to save that amount, if they earned the average wage for someone their age and put away 20% of their monthly salary.
While property prices continue to rise at a faster rate than wages, this situation will only get worse. And of course, rents are on the rise too, currently at a rate of around 2% per year. This creates a cycle of rental that it is tough to break.
3 – Lenders don’t want to lend
Possibly the most frustrating thing about this situation is that even if a young person saves up a 20% deposit for a home, making all the sacrifices that it entails, they still may not be able to get on the ladder. Why? Because mortgage lenders won’t lend to them.
Even at a time when interests are low, lenders regard young people who are on lower than the average wage as too much of a risk. Most mortgage lenders will lend around 4.5-5 times your salary. Unfortunately, even if you earn a fair salary, this will probably price you out of the market in places like London.
A bold solution
So, what can be done? Young people need to be able to buy their own homes, but the odds are stacked against them. There are obstacles in their way, wherever they look.
There could be long-term solutions, such as moving a larger number of jobs out of cities and into more affordable areas. The Government could offer incentives for developers to build more affordable homes (or just force them to!). Or, more could be done to compel lenders to be more accommodating to first-time buyers. However, these solutions will take a long time and rely on the goodwill of others.
What we need is a solution that can be implemented quickly and without the input of multiple stakeholders.
An attractive new model is ‘rent to buy’.
You take new build properties, with optimal energy efficiency ratings, saving aspiring homeowners money on household bills. Then, you offer someone with an income a five-year fixed-term, renewable tenancy period – providing security, while allowing them to save money and build up their credit rating. In turn, this increases their chances of being approved for a mortgage.
Rents need to be affordable for this new system to work. So the model sets rents at 80% of local open market prices or LHA rates, whichever is cheaper. All rents include service charges.
When the resident is ready to purchase their new home, the models gifts them 10% of the property’s value, to use as part of the deposit. The beauty of this model is you’re buying the home you already live in, so you miss the stress and expense of moving.
Bold answers are needed to break the cycle for generation rent. Is this the solution? We hope so.
