The combination of rising unemployment, less take home pay and lower interest rates, said the foundation, meant the Office of Budget Responsibility’s pessimistic forecast of a sharp 22 per cent drop in house prices by Q3 2021 was realistic.
But even with such a steep fall in house prices, the think tank warned that first-time buyers, in receipt of less income, would still struggle to afford a home.
For example, in the 1990s a young couple saving five per cent of their income each year could have a deposit in four years, according to the report. But by 2019, that figure had risen to 21 years.
If house prices fell by 22 per cent, first-time buyers would only be able to shave one year off the time it would take them to save for a house.
And while some households have managed to save more during lockdown, the foundation found that, coming into the crisis, just 13 per cent of private renters aged 24-35 years had savings of £10,000.
Moreover, a quarter of private renters have been forced to dig into their savings since the pandemic began.
The think tank also warned that if banks and mortgage lenders repeated their response to the financial crisis by introducing tighter credit conditions, this could have a serious impact on fledgling buyers.
Quarter century for deposit
According to its estimate, if the average first-time buyer loan-to-value fell to 80 per cent, as it did after the financial crisis, by 2024 the typical number of years required to save for a deposit would rise to 27 even if house prices fell by 22 per cent.
Although the stamp duty cut appears to remove a barrier to home ownership, as most first-time buyers were already exempt from the tax it has taken away their advantage and created more competition, according to the findings.
Lindsay Judge, research and policy analyst at the Resolution Foundation, said: “The coronavirus crisis has had a big impact on the education, career prospects and incomes of young people – and unfortunately there’s no silver lining for this group when it comes to house prices.
“Only those who already had high levels of savings before the pandemic started, or those who are able to borrow from their family, will truly benefit from the house price fall.
“This means the current crisis looks set to deepen pre-existing inequalities and the growing divide between those who are able to look forward to home ownership, and those for whom this dream is increasingly out of reach.”
The foundation wants government to ensure that young peoples’ incomes are protected in the aftermath of the coronavirus crisis, and that their competitive advantage as first-time buyers is maintained when the stamp duty holiday comes to an end.