We can’t get a mortgage and we’re doomed to renting forever. But is that really true? Or are young people more able to get an affordable roof over their head than the gloomy headlines might suggest?
Iona Bain
FIRST PUBLISHED: 2011
FULLY UPDATED: 2017
If there ever was a classic Catch 22 scenario, it is the one facing Generation Rent.
Young people are struggling to generate decent deposits to get a mortgage approved. This leaves them with no option but to rent or move back home. But this has never been so costly – rents have risen to an all-time high and more parents are charging a monthly price for home comforts. If young people can just about cover the cost of bills and keep their landlord or mum and dad happy every month, what will be left to put into a deposit, the magical pot of cash needed to get out of this scenario?
Joseph Heller would be proud. Or not, considering a whole generation is at the mercy of landlords, with many robbed of the opportunity to own a home.
But is that the whole story?
It seems that – in Britain at least – the dream of property ownership will never die. Buying and selling property remains the biggest concern among young people, according to a recent report by consumer body Which? Yet one in four young people believe they will never get on the housing ladder, according to research from Halifax.
There is a minority – one in five – who believe home ownership will become a thing of the past in the UK and some have argued that the whole concept is overrated anyway.
The arguments for renting…
For starters, paying back a mortgage – or even just interest – is just as financially onerous as renting, particularly if you have taken on a rather gigantic mortgage (inescapable for most first-time buyers). Moreover, young homeowners have the disadvantage of being tied down to one place, just at the time when you want the freedom to up sticks without the expenses of selling and moving. Renting allows you to be footloose and fancy-free.
But young people are paying through the nose for this flexibility. When I first wrote this guide six years ago (!) I reported that average rent a month was £692. As of spring 2017, that figure has shot up to £800 (at least in England and Wales). If you take the average weekly earnings in the UK at the moment, which amounts to roughly £528 according to the ONS, you can expect to hand over around 37% of your monthly pay check to your landlord. Even if you take into account the rent split between two occupiers, Easyroomate.com reckons the average flat-sharing rent is £465 this year, which is still around 20% out of your monthly income.
There are areas in the UK where rent is significantly higher, such as in London and the South East, and we all know the figures are far more affordable up north. But wherever you are, you agree to pay rent for a period of time the landlord assigns (normally a year) before you either negotiate another tenure or move on elsewhere. You must also ensure you have a steady job on at least average wages to fund that occupancy. So much for kicking up your heels, huh?
Then there is the continental argument, that prosperous and functional countries have a higher proportion of renters than homeowners. But take Germany: tenures tend to be stable, rent prices are tightly controlled, rental properties are good quality, taxation doesn’t really favour home ownership, and mortgage requirements have always been stringent.
My brother travels a lot thanks to his work and many of his German friends tell him rent is veritably cheap, even in a capital like Berlin. We’re nowhere NEAR creating an equitable marketplace for renters in the UK and a whole lot of disruptive and unpopular reform would be needed to get there.
Moreover, even in those areas where renting is just as expensive as here, you have to look at the big picture to understand the potentially huge difference in what foreign youngsters can afford to pay.
Germans studying in their own country don’t have the same levels of college debt to service and Germany also has the lowest youth-to-adult unemployment ratio in Europe, thanks in part to an apprenticeship programme offered by a huge number of domestic firms.
In this country, most are feeling the pinch, but young people are being given the economic equivalent of a Chinese burn. Student debt is a millstone round our necks, utilities and bills are getting more expensive, and those who have jobs are on a static wage packet, with their pay unable to keep up with ever-rising costs.
Easyroommate.com has reported a huge rise in the number of flat-hunters prepared to share with others rather than “setting up a love-nest”. The figures on the average first-time buyer age vary quite a bit depending on which source you use, but it has been well over the age of 30 for some time now, with some estimates putting it nearer 40 in places like London.
Is there any good news? Yes!
There are plenty of people who can’t even think about a deposit once they’ve paid all the monkeys off their backs.
But the good news? Things ARE getting better for first-time buyers.
The average amount need to get a mortgage approved is 16 per cent – not exactly a trifling amount, but down from 21 per cent when I first wrote this guide six years ago.
Yes, we quite possibly have to put down between £28,000 – £33,000 in deposit money if we want to purchase the average first-time property, which has surpassed £200,000 across the UK and £400,000 specifically in London (according to Halifax). But actually, the number of first-time buyers in the UK reached its highest level for a DECADE in March 2017, according to statistics released by the Council of Mortgage Lenders.
What’s more, the availability of first-time buyer properties has improved and the amount that mortgage payments take out of your monthly income is at record lows of 17.2 per cent. AND it looks like the crackdown on landlords is actually freeing up property for first-time buyers to snap up. Yes, deposits are still tear-inducing but if you can reach that summit, the view has (arguably) never been more promising.
Debate continues to rage about where property values will go over the next few years. Even the most optimistic say growth could be modest, and homes will not yield fantastic capital gains like they did between 1997 and 2007. Yet in the last six years, we have certainly not seen the “gentle reverse” predicted by Sean O’Grady of the Independent, with only the prime central London starting to experience the first signs of a (relative) price drop.
At least if you get a higher deposit together now you have lower interest rates to pay on your loan over time. And one day, the mortgage WILL get paid off – sooner rather than later if you cut back on the martinis and anything containing the word “artisan”. Compare this to the never-ending handover of hard-earned cash to an anonymous landlord.
A renter’s fury knows no bounds…
Had you got your skates on and bought property back in 2011/2012, however hard it may have been, you would have been on the receiving end of some pretty juicy price rises in promising areas where housing supply has been somewhat limited. London homeowners alone have seen their properties gain an average of £105 A DAY in value over the past five years.
When I first wrote this guide six years ago, the housing market was predicted to calm down a bit , with Halifax saying the following; “There is no rush to buy as the housing market looks set to remain subdued for the foreseeable future….therefore aspiring homeowners can take their time to save that all important deposit without the fear that house prices are going to soar out of reach”.
Oh how naïve that now looks! It turns out that property values have been rising in a pretty consistent and impressive manner this past six years.
These facts are not designed to make you go on a murderous rampage, but remind (or reassure) you that, yes, bricks & mortar remains a sound investment for anyone who can scrape together the cash sooner rather than later – but only in real property hot-spots. That doesn’t necessarily mean the Big Smoke, but anywhere with a promising economic outlook, good transport links and decent local amenities (natch). And remember this first-time-buyer nugget of truth; it is ALWAYS better to buy the worst place in the best area rather than the best place in the worst area.
Coming from someone with recent experience of renting, living at home, and sharing a mortgage with family support, my tips may be of scant consolation to many, but they are well meant and will work for some. Moreover, we will be covering the whole waterfront of saving for and buying property in 2017 in our upcoming series – so look out for it!
Live at home if you can bear it
People sometimes move out in pursuit of short-term independence, thereby giving up any hope of achieving it long-term. When you are doing the sums, add up all the costs of moving out – bills, council tax, transport, running your own car, insurance – as well as just the rent. If you are expected to pay a rent at home, could any part of it be stashed away by the parents for you and go towards your deposit?
If you do have access to Bank of Mum and Dad, investigate guarantor mortgages
You will still be the property owner and pay the mortgage, but your parents will underwrite the financial responsibility. If your earnings will take time to build, they may be willing to contribute a proportion of the monthly payment, which could decline over time until you take it on completely. If you are very lucky like me, you might also be able to take the mortgage on jointly with a sibling. My brother and I decided to set up home in West London together because we both work in the capital, needed a place to stay and get on very well. You might not be so fortunate, but if my situation is in any way similar to yours, don’t rule out living with family members.
You probably can’t afford to be a loner
More than three in four (79%) tenants could not afford the average rent rise needed for most landlords to remain profitable as a result of upcoming changes to the way mortgage interest payments are taxed, according to recent research from Platinum Property. However, thanks to lower rents and living with multiple tenants, renters in so-called “houses of multiple occupancy” would only face a potential average increase of £19 each – which more than three quarters (76%) could afford. HMO landlords are also less likely to need to increase rents at all because their properties generate four times the rental income compared to a single-tenancy buy-to-let property. In other words, it might all feel a bit Fresh Meat to live with others, but you will save way more money in the long term if you can manage.
Beware of new-build schemes
Shared equity offers from developers selling new-build flats should probably be treated with caution, as so many people have had their fingers burned buying similar properties. But you could investigate shared ownership with a housing association. The association takes ownership of between 25% and 75% of the property. The higher the buyer’s share, the lower the rent, and eventually the buyer can own it outright.
And finally, check out my financial fitness plan to help YOU save for your first home here and here.
What do you think? Tweet me @ionayoungmoney or leave a comment below…
