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In the UK we all aspire to buy property. Unlike other countries, such as France or Belgium, long term renting isn’t the norm here. Most of us assume we will either buy a starter home after working for a number of years in your first job at 18, or rent after university and then buy several years after that. However, things are changing in the housing market and fewer people are able to make that first key step onto the housing ladder’s bottom rung.
The government’s housing survey released in July highlighted that more and more young people are now forced to rely on parents to make the leap to property ownership. The survey indicated that 27% of first time home buyers were now reliant on the ‘bank of mum and dad’ or friends and family to make a property purchase. 20 years ago, only 21% of first-time buyers had to do this. Fewer people are now in a position to buy a property alone than was the case 10 years ago and 7% more are using inherited cash. The average age for first-time buyers has also risen, from 30 to 33. However, for those looking to buy in areas such as Central London it can be a lot trickier and take a lot longer to make it happen.
As you might expect from the above statistics, the overall numbers of first time home buyers are dropping too. In 1994/95 there were 857,000 first time buyer purchases in the UK but by 2004/05 this had dropped to 815,000. The real shock, however, is the last decade when the number of first-time buyers has fallen to 564,000. This is a very significant drop and comes despite the various measures that have been taken to try and help first time buyers, such as the Help to Buy scheme.
Given the lack of availability of affordable housing for first time home buyers, renting numbers are on the rise. 19% of English households are now privately rented – that’s 4.3 million in total. A decade ago that figure was just 11%. Anyone who has ever rented knows that there are many downsides to being stuck in a rental cycle. The lack of security from short rental contracts and landlords who don’t carry out basic repairs are a serious issue. Rents continue to rise steadily too – up by 5.1% in London over the past year bringing the average monthly rent to £1,543. Outside London average rents sit at around £764 a month. The biggest rent rises have been seen in Scotland where rents shot up 11% year-on-year to £704 a month.
Experts all over the industry agree that one of the biggest problems the UK housing sector faces is a simple lack of housing. Low construction rates and a lack of affordable homes mean there are few choices for those without five figures to put down for a roof over your head. Plus, the tightening of mortgage criteria and the increasingly large deposits that banks ask for now makes it even tougher. However, there are still options.
Help to Buy – the government scheme comes as either an equity loan or a mortgage guarantee. The equity loan is available for new build homes worth up to £600,000 as long as you have a 5% deposit. You can then borrow up to 20% of the purchase price (40% in London) and get a mortgage for the rest. The mortgage guarantee scheme means the government gives the lender a guarantee for a proportion of your mortgage if you can’t pay it back. This is designed to give lenders the confidence to lend to first time home buyers who might otherwise be too much of a risk. You can also invest in a Help to Buy ISA and the government will top up your savings to help you buy. Save £200 a month and the government will add £50, up to a maximum of £3,000.
Shared ownership – if you can find the right property then you can buy a share of it from the landlord (usually the council or a local housing association). You pay rent on the rest and have the option to continue buying shares in the property until you own in 100%.
Starter Homes Scheme – this is a scheme designed to make 100,000 new build homes available for first time buyers under the age of 40 with a discount of at least 20% of the property value. The discount comes from changes made to legislation to cut charges that developers pay so these can be passed onto buyers instead.
Loans and credit cards – if you’ve saved a small deposit, inherited some money or have access to the bank of mum and dad then loans and credit cards may help you to get the rest of the cash together to secure the deposit to apply for a mortgage.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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