We can’t get a foot on the property ladder (no matter how hard we save)
As cost of living crisis bites and Scotland’s housing boom shows no sign of slowing...
CHARLOTTE MORSE was an 18-year-old supermarket worker when she opened her Help to Buy Isa in 2015. At the time, the teenager was saving £20 a week into the account – and hoped to have bought her first home with a £15,000 deposit by her 25th birthday.
But now 25, Charlotte has saved £10,500 after often ploughing the maximum £200 monthly deposits into the Isa.
However, while the Government’s bonus will top up the account to £13,000 and Charlotte has saved a further £900, she still has no hope of buying a property.
This is because Charlotte is one of many first-time buyers whose savings cannot keep up with soaring property prices.
Nationwide Building Society figures last week revealed that homes are now worth 23.8pc more than they were before the start of the March 2020 lockdown.
Across the UK, the average house price in April was £267,672.
It means most properties outside of London are out of reach for people with Help to Buy Isas, as these buyers are restricted to properties worth less than £250,000.
A poll by Nationwide found the average aspiring buyer had put aside just £14,700 towards a deposit – with nearly half of respondents reducing the amount they were saving due to rising living costs.
Charlotte and partner Benji Gaynor, 30, have a combined income of £25,000 and dream of buying a home in Coventry where they can raise daughter Evie, two.
But properties in the medieval city have soared by 13pc, or £25,177, to £214,000 since the pandemic began, according to the Land Registry.
In that time the couple’s rent has been hiked by £360 a year, their weekly shop has become £20 more expensive and their energy bills have risen by £276.
And the pair now believe they will have to save £30,000 before they can buy – a goal they hope to fulfil next year, but will need family help to achieve.
Charlotte, who now works as a customer service assistant in a building society branch, says: ‘It’s so disheartening when you hear first-time buyers are lazy and should stop buying coffees. You just feel like you’re stuck in a loop, with prices going up all the time.’
The inability of people to get on to the property ladder comes as it emerged Boris Johnson is looking to expand Margaret Thatcher’s Right to Buy scheme for 2.5million households renting housing association properties in England.
The initiative, which currently allows families to buy the council houses they rent at a discounted price, was scrapped in Scotland in 2016 in an effort to protect the social housing stock.
But the Tories hope it will help ‘Generation Rent’ to become homeowners.
TAX HOLIDAY OVER
PROPERTY prices boomed in the pandemic as buyers rushed to move into country homes with more space.
Chancellor Rishi Sunak’s Stamp Duty holiday helped one million buyers save up to £15,000.
A Scottish equivalent of the scheme – the Land and Buildings Transaction Tax (LBTT) holiday – ran from July 2020 to March 2021.
But the number of first-time home loans taken out has plunged by 10pc since the English scheme was withdrawn in September, according to banking trade body UK Finance.
And critics of the tax break claim that only the wealthiest first-time buyers benefited from it.
This is because anyone buying their first home in Scotland was already exempt from paying LBTT on properties worth up to £175,000.
Since then, a desperate lack of supply has continued to push prices up and beyond the reach of many.
Matthew Carter, head of savings and mortgages at Coventry Building Society, says: ‘It’s a really challenging time to be taking that all-important first step on the property ladder, with rising house prices and the difficulties of saving for a deposit.’
COST OF LIVING CRUNCH
THE average first-time buyer paid a £61,100 deposit last year, according to Barclays.
And rocketing house prices are putting many under pressure to save even more.
However, with households set to lose £2,500 this year to the cost of living crisis and inflation expected to rise above 8pc, aspiring homeowners will find they have less cash to put aside. Rising energy, broadband, mobile, water and council tax bills will all leave workers feeling poorer.
Amanda Aumonier, head of mortgage operations at online broker Trussle, says: ‘Alongside the overall increase on household bills, the past few weeks has seen petrol and diesel prices rise significantly – something that may hit those saving for potential house deposits.’
In the meantime, the average UK tenant is paying their landlord £969 a month, with rents rising at their fastest rate in 13 years, according to property site Zoopla.
But even if savers avoid rent hikes by living at home, hard-hit parents may be able to lend less to their children.
The Bank of Mum and Dad was behind more than half of house purchases among under-35s in 2020, according to Legal and General.
David Hollingworth, of mortgage broker L&C, says: ‘The Bank of Mum and Dad isn’t even an option
for a lot of buyers – but as bills start to go up and inflation increases, then parents will have to reassess how much or whether they can afford to subsidise their children.’
NO HELP TO BUY
LIFETIME Isas (Lisas) can help first-time buyers beat inflation, as the Government will add a 25pc annual bonus to deposits of up to £4,000 a year.
But even savers relying on these accounts are seeing property prices outstrip their nest eggs’ growth.
The average Lisa has trebled in value since they were launched in April 2017 – and now stands at £9,500, according to Hargreaves Lansdown.
And individual savers who closed their accounts last September withdrew just under £18,000 on average, a record high for the investment platform.
Yet this is still just a third of the average first-time buyer deposit.
Moneybox currently pays the top rate for a cash Lisa of 0.85pc, with a one-off 0.6pc bonus which is paid one year after the account is opened.
However, the £450,000 limit on properties bought with Lisas has not moved in five years, despite ONS figures showing prices have risen by a quarter since then.
Those who opened a Help to Buy Isa before the scheme closed in 2019 are also limited to purchasing properties worth £250,000. But if the limit had increased each year in line with average house price growth it would sit at almost £336,000 today, according to AJ Bell.
Only homebuyers in London are given a more generous allowance of £450,000. Myron Jobson, senior personal finance analyst at investment platform Interactive Investor, says: ‘Every little helps when it comes to purchasing a home, but the average bonus of £1,115 barely covers home survey and legal fees – as well as other costs associated with buying a property.’
MISERABLE MORTGAGES
WHILE savers may still be waiting for a rise, banks and lenders have wasted no time in hiking mortgage rates.
And experts warn that home loans are likely to get even more expensive in the months ahead.
In March, the Bank of England announced a 0.25pc base rate hike to 0.75pc – with analysts predicting this could reach 2pc by November.
Consultants Capital Economics forecast that the average rate on a new mortgage will stand at nearly 3pc once the base rate rises to this height.
And under these conditions the average buyer would have to pay an extra £1,020 a year – even if house prices fell by 5pc, according to analysis by estate agent Hamptons.
Karen Noye, mortgage expert at Quilter, says: ‘To get onto the property ladder, first-time buyers often need to borrow the maximum amount available and are faced with higher interest rates as a result of high loan-to-value borrowing.
‘This rate increase, coupled with the rising cost of living, means they are faced with affordability problems that start to become insurmountable without significant help from Bank of Mum and Dad.’
There are now 269 fewer mortgage deals available on the market than there were at the beginning of February, according to analysts at Moneyfacts.
The average interest rate charged for a two-year fix for borrowers with a 10pc deposit has risen by 0.6 percentage points since December and now stands at 3.11pc.
It means that borrowers who sign up to one of these deals will pay £552 a year more for a £150,000 mortgage than they would have four months ago.
Eleanor Williams, finance expert at Moneyfacts, says: ‘Those who are debating whether to secure their first mortgage may want to think about exploring their options sooner, as the cost of borrowing could continue to rise over 2022.’
Meanwhile, lenders such as Santander, Barclays and TSB have all tweaked their affordability calculators in the past two months, so borrowers may be offered less than they usually would be.
Chris Sykes, of mortgage broker Private Finance, says one of his clients had their borrowing limit slashed by £100,000 to £1.5million.
LESS STRESS?
PLANS to loosen stress test rules could help 30,000 borrowers take on larger mortgages each year.
But experts warn that first-time buyers are unlikely to benefit from the changes. Lenders are currently obliged to ensure that any borrowers could afford repayments on a rate 3 percentage points above their standard variable rate.
However, the Bank of England is considering relaxing these rules and stress testing at 1 percentage point above the borrower’s mortgage rate instead.
The record-low interest rates of recent years have already allowed buyers to take on larger mortgages.
In January, the average mortgage was nearly £200,000, up 20pc from £166,000 six years ago.
However, as most renters find that raising a deposit is the main barrier to home ownership, the stress test changes may not help them.
And there is no guarantee that lenders will relax their own checks even if they are allowed to.
Dominik Lipnicki, director at Your Mortgage Decisions Ltd, says: ‘I think it’s highly unlikely that banks will become less cautious when inflation is still rising and the Ukraine is causing further uncertainty.’
HELPING HANDS
HANDING over a lump sum for a deposit is the most common way parents and grandparents help younger relatives onto the property ladder.
However, there are other options for those want to keep hold of spare cash for the hard months ahead.
First-time buyers can apply for mortgages with their parents’ backing through a ‘joint borrower, sole proprietor deal’.
Older parents and grandparents will be offered a shorter term on these loans, but Metrobank allows some borrowers to take out loans with terms which will last until they turn 80.
Some lenders also allow homebuyers to borrow more if their mortgage is tied to a savings account with a minimum balance.
The Barclays Family Springboard allows first-time buyers to take out a mortgage of up to 100pc with rates starting at 3.50pc as long as their parents lock away 10pc of the house value for five years.
The deposit of up to 10pc is then released back to the donor after five years.
Meanwhile, family offset mortgages can also reduce a first-time buyer’s repayment costs with a linked savings account.
For example, if parents deposited £50,000 into an account for a £200,000 mortgage, then interest would only be charged on the remaining £150,000.
Over-55s can also free cash from their own properties by taking out an equity release loan.
However, these are more expensive than standard mortgages – with the average rate currently standing at 4.33 pc.
Jane King, a consultant at mortgage advice firm Ash-Ridge, says: ‘Parents will be concerned about using too much of their savings and not having enough kept aside in case they need it and I would expect equity release loans to become more popular in the near future.’