We need innovative financial products and more flexibility from lenders to increase the agency of first-time buyers and solve millennial housing woes, argues Matthew Addison.
Who’s happy being a first-time buyer in the current marketplace? While today’s young people have it better than previous generations in some respects – flexibility in work, a greater ability to travel and more information than they’d ever need at their fingertips – millennials face lower wages, poorer retirement prospects and longer commutes. But perhaps worst of all, they are confronted by a housing market that gradually moves further and further out of reach.
After the 2008 financial crisis, regulations were rightly changed, and many lenders tightened their requirements, meaning that larger deposits were needed for a mortgage.
Over the past decade, deposit sizes have skyrocketed, growing to approximately £33,000, an increase of more than 94% when compared with the same figure in 2007. The effect of this has been marked, with estimates suggesting that it would now take 18 years for the average person aged between 27 and 30 to save for a deposit.
Almost two-thirds (62%) of the population aged under 35 have stated that they need parental assistance to buy a home, and if judged in purely monetary terms, the “Bank of Mum and Dad” would be the 11th biggest mortgage lender in the country, handing out approximately £6.3 billion in funding annually, and being involved in more than 250,000 property purchases.
While any action helping more people achieve the dream of homeownership must be considered a positive, and no one could blame a parent for wanting to help their children, this mustn’t become the norm. We need to see the buyer being empowered, rather than creating further reliance on the Bank of Mum and Dad.
One study found that a £10,000 increase in parental property wealth leads to an additional 1.4% chance of a child becoming a homeowner, even when differences in income and education are accounted for. This means that the child of an average homeowner is 32% more likely to climb on to the property ladder than the child of an average renter.
House prices grew by an extraordinary 281% across the UK between 1996 and 2016, and national property wealth is now upwards of £4 trillion.
Older generations – who are much more likely to own property – have used this concentration of net equity to help younger relations on to the ladder. This be done through cash means, via an equity release or re-mortgaging. However, property wealth also provides access to a plethora of additional products, such as the Post Office’s Family Link, and Lloyds “lend a hand” zero deposit guarantor mortgages.
I’d like to see reform to increase the agency of the first-time buyer. This doesn’t necessarily mean that we need to return to pre-crisis lending standards, however, there is room for institutions to offer products reflective of the life stage and finances of today’s first-time buyer, and they should aim to implement more flexibility in lending options.
However, this is only part of the problem. Some of the reason for high house prices is owing to the excess demand created by a generation unable to climb on to the property ladder because of a lack of appropriate stock for first-time buyers. As such, if we’re ever to truly solve the millennial housing crisis, we also need a programme of housebuilding.
Matthew Addison is chief executive officer at StepLadder.