According to the bods at the Institute for Fiscal Studies, the biggest decline in home ownership has been among middle earning young Brits. We’re talking those aged 25 – 34, who are in professional jobs, earning a comfortable salary by most reasonable definitions but lacking a key financial accomplishment that most of their parents now take for granted – a home of their own.
In 1995-96, 65% of this group owned a home, but just 27% do in 2015-16, with the biggest drop in south-east England.
It used to be more straightforward. Our parents were almost hardwired to save up for property, and this aspiration fitted in well with simpler life choices, wiggleroom in incomes and fewer ways to dispose of money. The labour market was, broadly speaking, also pretty compatible with this domestic set-up – staying in one home for many years made sense at a time when workers had jobs for far longer.
The nearest that our parents got to a painful pinch point was a pronounced jump in interest rates and inflation in the late 1980s. But even then, many homeowners (including my parents) were incentivised greatly to pay off their mortgages so they could get their housing costs under control.
And this is the key difference that young people suspect is at the heart of the renting disadvantage. There is always the chance of paying off a mortgage, particularly if interest rates are low and you haven’t overstretched yourself with your mortgage deal. But renting is a consistent pressure on one’s finances that may only get worse over time, especially if rent continues to go up and you acquire costly responsibilities, like looking after children or elderly parents.
Ultimately, like I said in one of the BBC reports that appeared today, this does affect the traditional measures of one’s prosperity. If you little chance of reducing your housing costs in the long-term, this will result in less money to put towards everything else, including personal savings and your retirement pot.
But the problem is that the housing market can’t be viewed in isolation. You also have to consider how our consumer economy and labour market have changed. Young workers have infinitely more choice today when it comes to their professional and personal lives. Changing attitudes to marriage, co-habitation, working patterns and job opportunities also contribute to this picture. People are, very broadly speaking, “settling down” in fewer numbers and later in life, moving jobs (and even cities/countries) far more frequently and being far more active consumers than their parents were in their youth.
Is this a chicken or egg scenario though? Are these changes being forced through by an increasingly inaccessible housing market? It’s hard to tell.
What does your dream crib look like?
Okay, you’re probably never going to have your own walk-in Nike closet or a private forest with trees planted by Pierce Brosnan. But is really too much to hope for your own pad one day? Is it really?
A pervading gloom has set in. Many young people today don’t believe they’ll ever earn the kind of money needed to even consider a mortgage. And once we inevitably fall into renting, particularly if we don’t have the B’n’B of Mum and Dad to fall back on, we get used to the grinding reality of successive landlords who are effectively strangers, running our home lives and deciding (possibly on a whim) whether we can stay or go.
It is a reality that many parents wouldn’t have wanted for their children. But some young people may also look at the austere, penny-pinching, baked beans-based existence that their parents endured when they were doing up grotty s***holes and trying to pay off a mortgage, and declare that insane.
However, it doesn’t have to be one or the other. There is a compromise between the two, and it is achievable – but only through some tough decisions. You can buy, but probably not in the nicest place. You can buy, but you’ll probably have to stay put for quite a few years to come to make the sums add up. You can buy sooner rather than later, but probably only if you can streamline your outgoings quite brutally. You can buy, but forget the Instagram filters and those new pictures of Jennifer Aniston’s pad if you want to feel happy and secure in the best home you can get. It’s all about choices and priorities, and you have to decide what’s right for you – it’s your life!
Keep your options open
The fact is that not enough new homes are being built. So house prices just keep on rising. And earnings may not keep up in a way that could make saving for a home comfortable, or even eminently do-able.
But it does rather depend on where you buy, what kind of mortgage you get and what your lifestyle is. Renting allows you to be footloose and fancy-free, and that is one reason why it becomes the default, open-ended option for lots of young people. But will your feelings and priorities change in another five, ten or twenty years time? Possibly. Any young person who completely gives up the home ownership option will see no point in saving money and will spend what could have gone on a home deposit on…no, I’m not going to say avocado brunches, I’m just not.
Ultimately, young people who give up saving for a home close down an avenue that might have made more sense further down the line. While it may not be achievable for all, the dream of home ownership should certainly not be discounted based on faulty data or an assumption that nothing will ever change.
Get a handle on costs
This handy calculator will give you an idea of how much you can borrow depending on what you earn. It shows that someone on the typical UK salary of £25,000 (with a 1 grand bonus each year) can expect to get a mortgage worth £82,900 to £115,000. But house prices in your desired area may be a lot more, and you’ll have to cough up the rest! It’s time to #getsaving.
Help! You need somebody…
BOMAD (Bank of Mum and Dad) is fast becoming the main source of help for first-time buyers these days. But if that’s not an option, what about co-buying? If you do pitch in with friends, make sure you get a watertight agreement on what will happen if one of you wants out. There’s also Help to Buy, a scheme where the government lends you 20% interest-free (or 40% in London) on a new-build property. But watch out for high ground rents and leaseholds (although there are plans to scrap these).
Pass go, pick up £33,000
The Lifetime Isa is a new savings and investment account which allows you to save up to £4000 a year, tax-free. What’s more, the government will give you 25% of whatever you save. So if you saved the maximum amount from 18 to 50 (the cut-off age) you would amass £32,000 in government bonuses. This doesn’t include savings interest or the returns you would make if you invested your LISA. There is way more on the blog about LISAs and I urge you to read this.