According to a recent study by the National Association of Estate Agents the proportion of under-30s able to buy their own homes has fallen to 3%, a significant drop from the 12% reported just a year ago. This drop in the numbers of young adults able to purchase a property suggests that a combination of factors are keeping them in rented accommodation, or increasingly, returning to live in the family home while they save money for a deposit. One of these factors is the changes to the mortgage rules, or MMR, which came into force last May, forcing banks to take greater account of an applicants spending habits, including the amount of disposable income, debt and their ability to continue to make mortgage payments if interest rates rise. With tougher affordability constraints, many young people are now facing a long wait to get on the housing ladder.
Quite apart from new mortgage rules, the rising property market across most of the UK means that most regions have seen average house prices at or above 2008 prices. On average across England and Wales, the housing now costs 7.1% more than it did just a year ago, with average prices of £176,581 according to the Land Registry. Across the UK regions prices vary significantly, with property in London rising by 17.4% in the last 12 months, while homes in the North East of England only rose in value by 1.8%. Despite this variation it seems that many young people are priced out of the market, with first time buyers having to raise 4.9 times their income in order to buy a home.
As the age group with the lowest average earnings, the under-30s have been hit particularly hard by the recent financial crisis. While all of the population has seen lower wages since the 2008 crash, those under 30 have been the worst affected. According to a report on wages published by the ONS, the average hourly pay of a 22-year old was £7.66 in 2013, down from £8.70 in 2008 (down almost 12%) and the average hourly pay of a 28-year-old was £11.17, down from £13.14 in 2008 (down 15%). In fact, among 22-30 year olds the median household income fell by 13 percent, while those aged 31-59 saw income fall by 7 percent and those aged 60+ had a stable income. In part this is because a higher proportion of the under-30s are unemployed (19% in 2013, compared to just 13% in 2008), making it impossible for them to think about homeownership.
Another significant barrier to homeownership for the under-30s is the rising cost of living. While the UK’s inflation rate fell to 0.5% in December 2014, living costs still continue to rise, with the Institute for Fiscal Studies estimating that on average workers are £1,600 a year worse off than they were in 2010. Young people who live in private rental accommodation have also seen rent rises of 5.4% nationally, with increases of 8.03% in the South East of England and 8.39% in Scotland. By June 2014 the average cost of renting in the UK was £1,018 per calendar month according to MoveWithUs.org. All of which means young people have less deposable income, making it difficult or impossible for them to save for a future home.
As a result of this difficult financial environment, a significant proportion of young people are moving back home to live with their parents in order to manage rising costs. Today, according to the ONS, 49% of those aged 20-24 live in their family home (an increase of 7% since 2008). In addition, 21% of 25-29 year-olds have returned home to live with their parents, meaning that across the UK 3.3 million young adults are sleeping in their childhood bedroom – the highest number since records began in 1996. According to those surveyed, almost half (48%) cited the costs of renting, or saving for a deposit for a home as their reason for returning. They are hoping that over time they can clear debts and save enough to move out into their own homes.
The fall in the levels of home ownership among the under-30s is part of a wider fall in the numbers of those owning their own property. Today, the percentage of the UK population who own their own home stands at 65.2%, down from 71% recorded in 2003. This is the first recorded fall in home ownership in the last 100 years, and reflects both the significant rise in property prices in recent years and a wider shortage of new homes across the UK. One of the main factors for demand at the moment is the low level of house building, which increases demand for the property that is currently on the market. At the same time, the rise in the number of private rental properties also means there are less homes available for owner-occupiers. The number of households renting their home has grown by 25% in the last 10 years, with 8.3 million people in the UK now tenants.
For those young people who have been able to buy their own home, many may have been helped onto the property ladder by their parents, who have either provided assistance with a deposit or have bought a home in partnership with their children. For those with the right amount of available equity, this can be a good solution, especially as both market rents and property prices seems set to continue to rise in the medium term. Those under-30s who have managed to save a small deposit may be able to buy a property through the Government’s Help to Buy scheme, which guarantees support of up to 20% of the value of the value of a property when a minimum 5% deposit is provided. More than 38,000 people, mostly first time buyers, have taken advantage of the scheme since it was launched in 2013.
It is certainly true that the financial climate for the under-30s is particularly difficult at the moment, but there is reason for hope. Wages are slowly rising and inflation and unemployment figures are falling. A rapid fall in oil prices since summer 2014 promises to help reduce the cost of living. Things are gradually getting better as the UK economic recovery gathers strength. With time, the building of new homes, and better rental conditions, it may be possible for today’s young adults to settle down and buy their own home.