This week Mortgage Solutions asked our experts whether they felt young people had lost the habit of saving for their first home?
John Azopardi, mortgage and protection adviser at New Leaf Distribution, explains that first-time buyers have been left climbing Himalayan peaks to reach their goal of home ownership.
Stacey Gulliver, financial adviser at MoneySprite, argues that childhood financial education can help ensure young people are prepared for the demands of committing to saving.
David Hollingworth, associate director communications at L&C Mortgages, notes that government leadership will be key to improving prospects for first-time buyers.
No, they haven’t lost the savings habit. If younger borrowers were asked to climb Ben Nevis before the financial crisis, they are now being asked to climb Mount Everest, particularly in London and the South East.
Property values have continued to rise, outstripping increases in annual incomes, and although lenders have progressively improved the number of high percentage mortgages they are prepared to grant, it is quite a task to get together a meaningful deposit.
Since the financial crisis, successive governments have tried to promote low cost borrowing schemes and reduce the cost of interest to first-time buyers. But the shortage of supply of affordable homes, with an increasing population, particularly in the South East, has led to new borrowers needing substantial deposits to buy their first home.
Credit should go to the lenders who have tried to think outside the norm, by developing and promoting lending schemes that prompt family assistance, for example the Family Springboard from Barclays.
Reliance on the Bank of Mum and Dad has become a regular feature of new borrowing. But it’s good to see that young borrowers are having this discussion with their parents and other close relatives, and that lenders are prepared to accept gifted deposits.
After all, these borrowers are creditworthy – often used to handling credit commitments – and are unlikely to default when a family member has given them funds towards a purchase.
Building more affordable homes has to be the answer, but successive policy-makers have failed that challenge in the last 20 years
Yes, I think some have lost the habit or rather the heart to save. House prices are so high and salaries for younger people can be low so even if they have a 5% deposit, using the income multiples they could achieve for a mortgage, it may not be enough to afford the home they want. Also, the younger generation want everything now; the thought of saving for 10 years probably puts younger people off saving, as they believe they have better use for their money now.
Most of my first-time buyers wish they had saved harder from a younger age when they realise how much deposits and all the associated costs of purchasing a home are.
I have found some of my young clients are relying heavily on parents or grandparents to provide or help top up deposits, however family members are very pleased to be in the position to help their children or grandchildren onto the property ladder.
The age of first-time buyers is certainly rising as young people are taking longer to save, prioritising travel or staying in education longer before making their first purchase.
Even if they are paying rent and general living costs there is often little left over for savings, meaning it can take years to accumulate even a 5% deposit. And in the meantime property prices are still rising.
There should be more emphasis on savings and running a home at school from a young age; even four years old is not too young to learn about money. This would be a very valuable exercise to encourage young people to understand how to save and get into the habit.
I am teaching our children to save for their house deposit. My nine-year-old son sold some of his toys, when he was asked what he was going to buy he replied: “I’m saving for my house”.
He wants an £8m mansion so has a long way to go, but it is a step in the right direction.
It’s no secret that one of the key challenges for first-time buyers is accumulating a big enough deposit. Although the options for those with only a small deposit are broader and more competitive than in the immediate aftermath of the financial crisis, many will need a bigger amount to bridge the gap between what they can borrow and the high purchase price of the property.
It would be easy to suggest that first-time buyers today and for the future simply don’t save hard enough early enough. However, it’s not all down to a must have it now culture and many young people find themselves facing high levels of student debt before even thinking about buying a home or saving for their retirement.
The age old issue of not building enough homes leads to higher house prices and also higher rents as more rent for longer. That does not make it easier to put money away each month and if prices continue to rise at a faster rate than they can save it will ultimately lead to people giving up on home ownership.
The Help to Buy ISA and Lifetime ISA are important front end incentives including the government bonus. These will undoubtedly help but the underlying issues will need to be addressed to cultivate the belief that home ownership is within realistic reach and in turn develop and maintain the right saving habits.
Although longer-term renting is likely to become more popular the desire to own remains a strong one. So while some might fail to cut back their spending enough, I’m sure many will still be prepared to sacrifice some of the luxuries to buy their first property.