Whenever there is a debate about the difficulties younger people have today in purchasing a home, there is bound to be someone who will pipe up – usually 50-years old-plus – arguing that it’s always been hard to buy a property, that they had to scrimp and save for their first deposit, and that ‘youngsters’ are simply going through the same trials and tribulations that they went through.
While I might agree that getting on the first rung of the property ladder has never been ‘easy’ regardless of your generation, I’m quite adamant that those who bought their first property in the 60s/70s/80s/90s, even noughties, never faced the market first-timers do today and that it is much harder to make the leap today, than back then. I will no doubt be met by dissenting voices talking about ‘going cap in hand to the building society manager’ or ‘not having the schemes available today’ or ‘having to deal with double-digit interest rates’ – and again I wouldn’t deny their truth, but I would still posit that today’s market is still much more difficult.
Recent research from the Institute of Fiscal Studies (IFS) would appear to bear this out. It looked at the generational differences in the purchase of that elusive first home – the results appear to show that, going back through the decades, the more likely you were to have owned your first home, for instance, by the time you were 27. Even if there is a five to 10 year difference in terms of when you were born, it gets progressively harder to purchase a home, and we therefore have a situation now where, if you were born in the late 1980s, are in that late 20s range, then you have a homeownership rate of 25%. Compare that to 33% for those born five years earlier, and 43% for those born a decade earlier.
Indeed, the research appears to show that if you’re a middle-income earner in your late 20s then you’re even less likely to be a homeowner simply because house prices have outstripped income growth. The IFS research revealed that house prices in 2015-16 were 152% higher than those 20 years earlier, while wages had only increased (for those between 25-34) by 22% over the same time period. Given those statistics it is no wonder that this age group finds it much more difficult to purchase than previous generations.
Interestingly, the ‘saving grace’ for those in this age group, and seeking to purchase, is the ‘occupational class’ of their parents. Unsurprisingly, the higher that is, the better chance this age group have of being a homeowner, no doubt because it is at this level that the Bank of Mum and Dad kicks in, helping the offspring to bridge both the deposit and affordability gap, that exists for all others and makes ownership seemingly unreachable for so many.
In a sense the IFS research isn’t telling us anything we don’t already know. Younger people find buying a first property harder and, there are some pretty fundamental and steadfast reasons behind this: house price increases, wage inflation being very low, deposit requirements, mortgage affordability being tightened, a lack of housing supply/affordable homes, not enough properties being available in the places people want to live, a lack of high LTV mortgages, historic competition from buy-to-let landlords – I think that’s probably enough to get on with, and would lead many without the support of the Bank of Mum and Dad to believe that they have little chance of getting on the ladder. Even if the heart and mind is willing, the wallet/purse might not be able.
There are a few glimmers of hope – prices have stopped rising faster than wages in recent years, there has been an increase in the number of new homes being built, this Government appears committed to helping more first-timers, we have schemes like Help to Buy plus greater levels of affordable housing being built, and landlords have been pegged back with a series of measures which means their purchase levels have dropped considerably, plus of course the recent cut in stamp duty specifically for first-timers. The prospective first-time buyer of today certainly has more things going for him or her than five/10 years ago, and the numbers are rising.
However, one of the flies in the ointment has been high LTV mortgage availability – 95% products are still very scarce, especially in a post-Help to Buy 2 environment which encouraged them within the scheme and helped increase competition from building societies outside it. The average deposit put down by first-time buyers remains 19% – far too high for the vast majority of would-be purchasers – and for many its 10% deposit or nothing. With house price levels as they are, 10% is still many thousands of pounds and far too many younger people believe they have no chance of saving this amount and that home ownership will elude them for many years to come.
There has been much talk about first-time buyers being a new specialist ‘niche’ in the sector but it is still a sector dominated by the mainstream operators who are risk-averse and not likely to write a significant amount of business at these higher LTV levels. This market is ripe for new challengers and specialists to make their mark and they can utilise private mortgage insurance in order to mitigate the risk and help a significant number of potential homeowners. The tide has been turning in their direction but we are still a long way from today’s generation being able to say ‘they’ve never had it so good’.
Pad Bamford is business development director at AmTrust Mortgage & Credit