Up to a Third of Millennials will never own a Home – What can be done to buck the Trend?
A new study released today by the Resolution Foundation predicts that as many as one in three UK adults born between 1980 and 1996 will never be homeowners. The study also revealed that 40% of this generation – colloquially referred to as “millennials” – still live in rented accommodation by the age of 30. This figure is twice as high as the previous generation. According to the Money Advice Service, four in five Britons would still prefer to live in homes they owned themselves, despite this trend . Clearly, the property ladder is proving prohibitively expensive for huge chunk of the population to step onto.
Britain’s Housing Crisis
According to one of the study’s authors, senior policy analyst Lindsay Judge, “Britain’s housing problems have developed into a full-blown crisis”, and younger people are “bearing the brunt”. According to the study, a record-breaking 1.8 million young families now occupy rented accommodation, which can spark a host of anxieties for parents and carers. Tenants risk the uncertainty of rising rent, not to mention the possibility of being asked to leave the property. This has the potential to severely disrupt children’s schoolwork and friendship groups. Today’s young adults have also experienced cuts to the value of their Housing Benefits, which covered a much larger portion of rent for previous generations. High rents, with little help, combined with the rising living costs and stagnating wages of recent years, can easily foil many people’s dreams of buying their own home. This is not just an issue for millennials themselves – if this trend continues, many people will still be renting when they come to retire. This is predicted to raise the amount the government spends on Housing Benefits from £6.3 billion today, to at least £16 billion by 2060. As the report concludes, “everyone ultimately pays for failing to tackle Britain’s housing crisis”.
The Resolution Foundation suggests that these issues could be tackled with a number of housing policy reforms. Firstly, the authors of this study believe that being ‘over-housed’ – owning a second home, or unoccupied property – should be discouraged through tax increases. This, they predict, would free up properties for first-time buyers. They also suggest the imposition of tighter regulations on the privately rented sector, to reduce risks for tenants. The rest of the UK could follow Scotland’s lead in implementing open-ended tenures, giving them both greater flexibility and stability. As well as this, the study addressed the possibility of introducing rent control. Many landlords fear that this would prevent the price of renting from rising with the market, making leasing property less appealing, and damaging the sector. However, the Resolution Foundation believe that a compromised ‘light touch’ rent control could benefit tenants without impeding landlords. They propose the introduction of a yearly price rise cap based on the rate of inflation, plus 1% – except in circumstances where the property had undergone significant improvement justifying higher rents. Under the report’s proposals, rent prices would also have to be reviewed every three years.
By giving tenants greater stability, and protecting them from spikes in rent, the Resolution Foundation believe that young people who wanted to would be better able to save for a deposit for their own home. These measures, though, would need to be combined with the greater availability of affordable homes. The Foundation’s report notes that this is unlikely to happen if the government depends entirely upon private developers, and recommends that the state itself fund new housing developments, hopefully easing the pressure of sky-high prices.
Getting your Foot on the Ladder
The Resolution Foundation’s study sheds new light on the housing crisis, and explores prevalent intergenerational housing inequalities. Nonetheless, there is plenty you can do now to boost your chances of getting on the housing ladder. The biggest hurdle most people will face is saving for a mortgage deposit. Since this is generally around 20% of the property’s value, a deposit can cost £20,000 or more. Bigger deposits generally mean better interest rates on your mortgage, so delaying buying a home, in order to save more money, could be beneficial in the long run. By maximising your savings and setting clear goals, though, this can be achieved.
- Consider asking Friends or Family for Help
If your friends and family are willing and able, they could be a huge boost to your saving efforts. Their contribution need not be a cash gift – you could arrange a repayment plan which you are both happy with.
- Consider the Help to Buy Scheme
Under this scheme, you pay 5% of the total deposit, whilst the government or property developer makes up the rest as a loan. This scheme allows you to purchase a property much more quickly, with a much smaller deposit, but there are potential issues to consider. The scheme is only available for the purchase of new-build properties, limiting your choice. Additionally, after five years, you will have to pay interest on the money you were loaned for your deposit. This is 1.75% at first, rising with inflation plus, an extra 1%, in subsequent years. Working out exactly how much this scheme will cost over the long term is vital.
- Some Mortgages could help you cover Administrative Costs
Some mortgage deals will include the cost of legal fees and Stamp Duty (Land and Property Transaction Tax if you live in Scotland), shrinking the lump sum you will have to raise for buying your home.
- Work out how much you can Save
You can do this with pen and paper, or use the Money Advice service’s Savings Calculator to help. This will help you figure out how long your deposit will take to gather, hence which saving account will provide you with the best returns. If you are able to set aside £150 each month, you can expect to have a workable deposit together after about five years.
- Sort out Debts First
When you have dreamed of owning a home for years, it can be tempting to jump straight into saving, but most experts recommend dealing with any unsecured debt you have built up first. This way, you will eventually increase the amount of money you have available to save for your deposit. If you cannot manage your current payments, get in touch with your creditors to discuss an affordable repayment plan. Alternatively, you could consider reducing your monthly payments with a DMP or IVA. It should be noted that both will affect your credit score, though, will reduce your likelihood of being granted a mortgage for a few years.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.