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Minority of young adults expect to own a home despite improving mortgage affordability – research

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  • 22/02/2019
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Minority of young adults expect to own a home despite improving mortgage affordability – research
The average cost of repaying a mortgage is now more affordable than it was ten years ago, but still less than half of young adults see owning a property as a long-term financial aspiration, two surveys have found.

 

While servicing a mortgage has become more affordable, it is raising the deposit which continues to be the biggest concern.

According to research from Private Finance, the average borrower is spending £104 less on monthly mortgage payments than ten years ago.

It found that monthly mortgage payments have dropped from an average of 43 per cent of income in 2008 to 31 per cent in 2018.

In terms of actual payments, the report showed that the average borrower is now saving £104 a month, with monthly repayments down from £804 to £700, a decrease of 13 per cent.

This is despite the average house price growing by £51,660 over the same period.

Over a 20-year period, payments have remained almost unchanged from 30 per cent of income in 1998 to 31 per cent in 2018.

This comes despite house prices soaring by 225 per cent over the same period, up from £70,313 in 1998 to £228,513 in 2018.

However, Private Finance said house prices now represented 8.5 times annual income, compared to 4.7 times 20 years ago and as a result, the typical loan has more than tripled from £52,735 to £171,384.

Falling mortgage rates and wage growth mean the cost of servicing a mortgage has remained stable even though buyers face larger loans.

Shaun Church, director at Private Finance (pictured), said that thanks to falling rates, those with a mortgage today are in a similar – if not better – position than their predecessors, who owned property at a time when housing was considered vastly less expensive.

He added: “With the value of property skyrocketing over the past 20 years, it’s undeniable that first-time buyers today face a far greater challenge stepping onto the housing ladder.

“However, once buyers have raised their deposit, the ongoing cost of owning a home is less of a financial strain than that faced by buyers a decade earlier, and broadly in line with affordability levels seen 20 years ago when property values were much lower.

“Home ownership can be attainable. Those in a position to buy should shop around for the best rates on the market, to ensure they capitalise on the incredibly competitive rates currently on offer.”

 

Four in ten expect home ownership

The difficulties faced by young adults was raised in research conducted by Yolt.

It found that 64 per cent of young adults were optimistic about achieving their future financial ambitions, with 84 per cent sacrificing their day-to-day standard of living to future proof their finances.

However, only 40 per cent of millennials saw owning a home as a long-term financial aspiration, this was despite saving more as a percentage of their monthly income to fund future financial goals than any other age group.

On average, young adults were putting away 25 per cent of their income each month, the highest proportion of any age range included in the research.

The next closest age bracket is 36-44 year olds, who managed to save 17 per cent of their salary, highlighting that younger peers are not as reckless with their finances as many would think.

In fact, 62 per cent of millennials put away at least 10 per cent of their income every month and 18 per cent are able to save 50 per cent or more of their salary.

The reseachers suggested the relatively high saving rates might be made possible by the fact that 26 per cent of young adults still live at home.

Around 45 per cent of this age group said they wanted a better return on their savings, 43 per cent wanted more tools to help them easily track and manage their savings and more than a third wanted more education around the saving options available.

Pauline van Brakel, chief compliance officer at Yolt, said that it was clear that young adults are both optimistic and realistic about their financial goals.

She added: “Our research really debunks millennial money myths and attitudes, proving that millennials are more focused on saving, meeting financial goals, and investing in their financial futures.”

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