As regulated mortgage advisers, we are often asked this question, which is unsurprising when you consider that the average house price in England now stands at around £247,355. Taking a step back to look at the wider historical data, the growth in house prices since the 1980s has been significant; over the last 40 years, property values have increased by nearly 7% each year. A house which cost £24,000 in 1980, would likely now cost over £250,000.
It is hardly surprising, therefore, that many people baulk today at the cost of buying a house, and many question whether future generations will be able to afford one at all. However, recent mortgage approval data suggests that many are choosing to buy a new home, perhaps taking advantage of the temporary removal of Stamp Duty on the first £500,000 which is available to those buying their main residence.
Here at Vesta Wealth, we wanted to offer our thoughts on this subject which may affect people here in Cumbria, Teesside and across the North of England.
If you or someone you know might find this useful, please get in touch. We would be delighted to answer any questions you may have about how this could affect your mortgage or plans to buy your home, via:
t: 01228 210 137
e: [email protected]
Wage growth & house price growth
One of the difficulties of rising house prices in the UK is that wage growth has not matched the former. In the 1980s, real wage growth was 2.9% and it fell to 1.5% in the 1990s. The 2000s saw the figure drop to 1.2%, and the 2010s were even worse at -2.2%. In other words, whilst the average UK property may have increased by more than tenfold over the last forty years, wage growth has sometimes barely kept up with inflation.
The property landscape in England is complex and its development over this timeframe has created a big disparity. Broadly speaking, those who never got on the property ladder in the 1970s, 80s and 90s are less able to give their children a financial ‘leg up’ to get the necessary funds together for a deposit themselves. Those who did achieve this, however, have likely been able to ‘ride the wave’ of rising house prices, putting them in a better position to act as ‘the bank of mum and dad’.
Rising deposits
One of the knock-on effects of the 2007-08 financial crisis was the introduction of stricter regulations for lenders. Banks also became more cautious in the products they offered. In the 1990s, for instance, it was possible to take out a mortgage with only a 10% deposit, yet today you might need as much as 20-25% of the purchase price (depending on market conditions). In short, not only have house prices risen but required deposits have too. According to Shelter, it takes a young couple at least 10 years to save up the required deposit for a property in nearly 70% of counties in England.
Hope ahead?
There is growing evidence that people are finding mortgage deposits, often with the help of family members, and it is possible that in the future we could have better wage growth which might make mortgages easier to afford. Whilst some anticipated that house prices may fall in the coming years, in the very recent short term there has been an increase, which was not anticipated when the Office for Budget Responsibility (OBR) predicted an 11% fall by the end of 2021 is its central forecast (with a potential dramatic fall of 22%).
A fall in prices could potentially benefit first-time buyers, yet it’s important to recognise that lenders may then ask for a larger deposit due to the wider economic environment (e.g. rising unemployment). Indeed, rather than lowering inequalities between those hoping to buy their first property and those who are not, the pandemic and a possible recession could entrench them further. Given this picture, what can young people do to increase their prospects of getting on the housing ladder?
Review your budget. Many people are on a tight budget already. Yet lots of workers are wasting hundreds of pounds each month on unnecessary costs such as unused digital subscriptions and gym memberships. Consider taking greater control of your spending to free up savings towards your near future.
Pay off debts. The interest payments on personal loans and credit card debt represents money which could, otherwise, be going towards saving for your first home. Try to find realistic ways to lower and eradicate these debts.
Consider a family chat. Some are in the fortunate position of having parents, grandparents or other relatives who may be able to contribute towards the purchase of a first home. Yet perhaps the topic has never been honestly and openly talked about, so that everyone is united behind the same plan of action. If relationships allow, consider bringing people together to discuss it – in the right timing, manner and context.
Invitation
If you would like to discuss your mortgage requirements or plans to buy your home, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.