Millennials gloomy on prospect of owning own home: 5 reasons for some cheer
A new study has confirmed what many already knew - young people are not optimistic about the potential of buying and owning their first home.
The survey, conducted by the Building Societies Association (BSA), found that despite 48% of respondents stating they’d like to buy their own home within the next decade, 41% said they think it’s unlikely they’d be able to do so in that period.
In fact, 70% of respondents noted that the struggle to make the first step onto the housing ladder is a major issue, highlighted by the fact that the number of people who own their own home has dropped by 7% to 33% since 2008.
House prices were noted as the primary issue, along with the access to a mortgage. But this younger audience was also concerned about the affordability of mortgage payments, their own job security and the future outlook of property value. 11% said they thought the house buying process itself was too complex.
Paul Broadhead, head of mortgage and housing policy at the BSA noted that: “It is stark and worrying how gloomy many young people are about their chances of future home ownership.
“With the average age of a first-time buyer standing at 33, this is the very group most likely to be considering buying. If they are right and their chances in 10 years are still bad the societal divide and economic impact already being felt can only grow.”
But despite the apparent gloom and evident problems facing first-time buyers, there are reasons for cheer. Here are just five reasons why home ownership isn’t such a far-off dream.
Help to Buy: Shared Ownership
If you want to work towards owning a property outright whilst enjoying actually living in said property, then the Help to Buy: Shared Ownership scheme is a great option for first-time buyers.
The scheme lets buyers directly purchase anywhere between 25% and 75% of a property to get started and pay rent on the remaining share. And when you can afford it, you can buy more share in the property until you own it outright.
For some buying their first home, they may not have heard about or factored in Stamp Duty until they’d already begun the house-buying process. Younger people who may have struggled to save enough for a 10% deposit in the first place could have been left raiding their bank accounts or asking the bank of Mum and Dad for support instead to cover the additional cost.
But this concern was alleviated by the government in the Autumn Budget last year when Philip Hammond announced that first-time buyers would pay no Stamp Duty on the first £300,000 of properties worth up to £500,000. The announcement essentially meant a complete Stamp Duty cut for the majority buying their first home, outside of London anyhow – a potential saving of up to £15,000.
Help to Buy: ISA
For many living in private rental accommodation, the biggest hurdle is being able to put enough money aside each month to save for a mortgage deposit in the first place. The Help to Buy ISA was created to directly help those struggling with this.
The Help to Buy ISA works by allowing savers to save into a specific home-buying ISA account which the government boosts by 25% each year, up to £3,000 / annum. So, if you can save away £200 a month for a year, you’ll have £2,400 plus a £600 bonus from the government as a result. In three years you’ll have amassed £9,000, enough deposit to secure a property worth up to £180,000 if you can secure a 5% deposit mortgage (see next).
5% deposit with Help to Buy Shared Equity Loans
Another Help to Buy initiative, the 5% deposit mortgage (or equity loan) works by the government lending first-time buyers up to 20% of the cost of a newly built home, meaning buyers only need a 5% deposit to cover the remaining 75% property purchase. The 20% equity loan is a loan, but no interest is charged for the first five years of owning your home. A good option if the initial deposit itself is the greatest hurdle, especially if worked in-tandem with a Help to Buy ISA to accelerate savings growth.
‘Family Link’ Mortgages
Some first-time buyers are reliant on family to help stump-up initial deposit funds to secure their first home, which is fine. Some families though won’t have a joint savings pot large enough to cover an entire deposit, especially if the property is outside of a Help to Buy scheme, but that doesn’t mean they still can’t help.
The Post Office recognised this issue and introduced a new mortgage called Family Link which allows parents the option of helping to fund their children’s deposit by using the value of their own home.
It’s directly built for first-timers who can well afford mortgage payments, but spare cash is hard to come by to put towards a deposit, or parents who own their own home but don’t have that large cash sum available.
The first-time buyer purchases 90% of the value of the property, whilst the remaining 10% that’s typically a deposit is secured against the ‘assistor’s’ home, which must be mortgage free itself. The first-time buyer then repays that 10% family-owned property-secured loan each month over the first five years, on top of their initial mortgage.
This approach won’t be everyone’s first or preferred choice, but it’s certainly an option for families struggling to help save a big enough deposit pot in the first place.
LPC Living recently launched a new Help to Buy development called The Oaks in Gatley, Greater Manchester. Read more about the project here.