The challenges of getting on the property ladder today
It’s near impossible to escape news of the property market and the struggle aspiring homeowners face. With multiple challenges to taking the first step on the property ladder, the number of young homeowners is declining.
According to the annual English Housing Survey, 64% of the population owned their own home in 2017/18. While a slight increase on the previous year, it’s still below the 2003 peak of 71%.
When you look at younger generations it’s clear that the obstacles of purchasing a home are having an impact. Today, less than four in ten (38%) of 25 to 34-year-olds are homeowners. It’s a considerable fall from just a decade ago when the figure stood at 55%. But what’s fuelling the trend? There are several key factors that are making it more difficult for first-time buyers to take the plunge.
Rising property prices
Right at the top of the list of reasons why first-time buyers are struggling is rising property prices. Over the last few decades, house prices have risen astronomically. Even when you look at the last ten years, factoring in the effects of the financial crisis, the returns have been high. Many homeowners have made a profit on their property investment, despite experiencing a short-term dip.
Looking over a period of 20 years, the average house price in the UK has increased by more than £150,000, according to the House Price Index. In December 1998, the average property house price was £72,469, two decades later it stands at £230,630. With these figures, it’s easy to see why some young people are struggling to tick off the milestone of home ownership.
When you compare wage growth to house prices, the difference is marked. The average salary stands at around £27,200. As a result, the average worker would have to borrow more than eight times their salary to secure the average home.
Size of deposit required
As the deposit required to purchase a home is based on a percentage of what’s being borrowed, the amount needed has naturally increased as property prices have risen. A typical first-time buyer will need 5-10% to be approved for a mortgage, with the most competitive interest rates often reserved for those with larger deposits.
Even paying a 5% deposit means saving more than £11,500 to purchase the average property. It’s a sum that can take several years to pull together.
The good news for first-time buyers is that there is an increasing number of mortgage options that provide a solution, including those that require no deposit at all.
Stress testing mortgage applications
Following the financial crisis, lenders have become more stringent in their lending criteria. They are also required to stress-test borrowers, ensuring they could continue to meet their mortgage repayments if interest rates increased. It means those who would have been approved for a mortgage pre-2008 can now find they’re struggling to secure one or, if they do, they’re offered much lower levels of credit.
Some would-be homeowners find they’re in a position and ready to buy a home, but simply can’t secure a mortgage due to this. Lenders have slowly been relaxing their rules and there are also specialist lenders on the market, which a broker may be able to help those in this situation access.
Trapped paying rent
Trying to save a deposit for a mortgage when paying rent has always been a challenge. But as rents have increased over the last decade, it’s become even more challenging. In 2018, average rent across the UK increased by 1.5%, according to the Homelet Rental Index. The average monthly rent now stands at £921 per month, though the amount varies geographically. Unsurprisingly, London had the highest average rent at £1,569 following a 4.7% increase.
Despite mortgage payments typically being cheaper than rent, it means tenants may find it difficult to make the transition to home ownership. It can leave some families trapped renting even when they’ve proven they’re able to keep up with repayments.
If you or a loved one is struggling to get on the property ladder, there are steps that can be taken. If you’d like help and support, please contact us.
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