Why does homebuying feel hopeless for younger generations?
It’s no secret that the property market is in a level of turmoil now. But while house prices are shrinking, interest rates are rising – as is the age of First Time Buyers, who are averaging at about 34 years old.
With two out of five buyers having their property purchase fall through in 2022 and over one in three choosing not to buy in 2023 because of the cost of living crisis, things look especially bleak. On top of this, it’s the younger generation of buyers who are suffering the most with over two-thirds of them (68%) choosing to compromise so that they can successfully buy a property.
With the average property price having risen by 173% since 1997, property buying has only grown in difficulty.
But ‘difficult’ doesn’t mean hopeless.
Many young people are turning to renting.
Millennials and Generation Zs have sometimes been dubbed as ‘Generation Rent’, a set of younger renters who have been priced out of the housing market and forced into renting bubbles.
Renting does suit some people more than others, but for those who can’t afford to leave the rental market and start building equity, it can be a strain.
With the cost of purchasing a property, it makes sense that young people are more inclined to rent. But recently, rents have risen above what many tenants can afford, leading to largescale evictions and downsizing.
Rents are now at the highest rate on record at a 5.1 % increase in the past year. This obviously makes the prospect of saving to buy a property extremely difficult.
There are ways around this that include schemes amongst other things. It’s important to remember that in buying a property, you’re investing in equity so that should you buy another home in the future, you will have the finances to get a better one. By remaining in the rental market and not acquiring equity, achieving this will be significantly harder.
Buying a property isn't hopeless and we have some tips on how you can do it.
Options for younger buyers:
1. Schemes.
Perhaps most widely known is the series of government schemes put in place to simplify and cheapen the home buying process for younger and less financially secure buyers.
Shared Ownership can grant buyers a significantly smaller deposit. A joint mortgage can allow for a shared contribution to a deposit, splitting costs. Springboard mortgages give buyers the opportunity to buy without a cash deposit.
The Help to Buy scheme is also available to buyers in Wales, who can't afford a large deposit but could afford mortgage repayments.
2. 95% LTV mortgages.
The 95% LTV (Loan to Value) mortgage is available to any buyer, not just First Time Buyers. What it allows for is a far smaller deposit with a larger mortgage.
So for example, if you hope to buy a £200,000 property, your deposit would only be £10,000 rather than the national average of £62,000.
A 95% mortgage gives buyers an opportunity to purchase a home with a 5-year fixed term mortgage, giving homeowners peace of mind over their mortgage repayments for the first 5 years.
The properties you can get with a 95% mortgage are capped at any home worth £600,000 or less in order to keep the scheme only available to those who truly need it.
With a 95% mortgage, it’s important to keep in mind that should house prices fall when the scheme ends, you might be at risk of having negative equity. There are also no set rules as to what the 95% mortgage’s fixed rate must be, meaning that monthly repayments may not be more than a standard mortgage's.
3. Locational compromise.
Nobody wants to compromise too much, and it’s clear that young people are already being forced to. Location can be a vital factor when it comes to picking your home, whether that be for work, your children’s school, or family. However, compromising a location doesn’t have to mean moving across counties.
Something that many homebuyers aren’t aware of is the difference even a street can make. Oftentimes, a road only a short walk away from your ideal home can be significantly cheaper. This can be due to school catchment areas, local businesses, parking access and more.
Expanding your options based on location can increase your chances of buying a home by a lot.
4. The price isn’t always the price.
It may sound odd, but in many cases the asking price for a property is not as set in stone as it seems. Yes, it’s the price the seller is asking for, but that doesn’t mean you shouldn’t engage with the estate agent.
The property you’re interested in might have been on the market for a while, making the seller more open to reductions. It may even be that despite the purchase price, they’re receptive to haggling. Estate agents will be there to support you but also the seller, and so the price displayed will often reflect the amount the seller wants, but that doesn’t mean it’s immovable.
If you don’t ask, you won’t know.
5. Speak to a mortgage broker.
We recommend approaching a mortgage broker at the earliest stage possible to identify your options. As soon as you know your finances, and ideally once you have an understanding of your credit score, a mortgage advisor can work with you to find the right mortgage deals for you and what you can afford.
If you want a better understanding of your mortgage potential before taking these steps, you can get free advice from Mortgage Advice Bureau via reallymoving.