With house prices rising by 173% in the last two decades, around 40% of young people are finding that they now can’t even afford to buy any of the cheaper houses in their area, despite having a 10% deposit.
With the average salary for people aged 25-34 rising by 19% over this same period, these statistics seem very strange. However, when you consider that rental costs are now higher – up from around £140 per week to £200 per week in England - this could explain the problem. According to The Institute for Fiscal Studies, the “reduced purchasing power of young adults’ incomes” has made it much harder to save for a deposit.
To put this into perspective – in 1996, 93% of young people with a deposit who had borrowed four and a half times their salary were able to purchase a home. By 2016 this had fallen to 61% and isn’t set to change any time soon.
Recent suggestions by Onward, a think tank, support the idea of landlords being rewarded if they choose to sell to their long-term private tenants. Buy-to-let properties should become eligible for 100% capital gains tax relief if sold to the tenant living there, as long as they’ve been in the property for three years or more. This would then enable tenants to apply for a mortgage on that property.
However, there are still a number of landlords who would prefer tax relief on rent from long-term tenancies, or a refund on Stamp Duty instead of this proposed scheme because they feel this would be more beneficial to them right now.
One thing is for sure – there is a large disparity now between older and younger generations. Only 35% of 25-34 year olds currently own their own homes, whereas 80% of 65-74 year olds are homeowners.
The IFS has suggested that the government ought to increase the supply of homes in order to help more young people to get onto the property ladder. A spokesperson for the Ministry of Housing, Communities and Local Government said that 1.1 million properties had been built since 2010 and that they are committed to supporting first time buyers in their pursuit of a property.