Home ownership barrier not the mortgage…its the deposit

With this being our 40^th anniversary and with my children now coming to that stage in their lives when they will soon be looking for their own first home it is interesting to reflect on how things have changed for this generation of first time buyers.

We were luck to buy our first home before house prices started to take off in the mid-1990s, we had to save for a deposit but in truth with low house prices that didn’t take us very long. Interest rates were much higher and at one point very briefly went up to 15% but generally, especially during a long period of a growing incomes, the mortgage was affordable.

Today’s first-time buyer has a very different experience of the housing market. We now have relatively moderate increases in prices with, depending which figures you use, an annual increase of between 4% and 6%, and with a slight drop in Quarter 2 reported this year. Moderate house price increases are generally regarded as a good thing and a sign of a confidence in the economy, but it is relative to earnings. In Northern Ireland median gross weekly earnings for full-time employees in 2017 increased by 1.5% when adjusted for inflation, this translates into a decrease of 1.0%. So even moderate house prices are taking the possibility of home ownership further away from first time buyers even in an era of very cheap mortgages.

But this near time perspective can be misleading. Since 2000, house prices have risen more than 250 per cent in the UK compared with earnings growth of just 68 per cent. According to the Resolution Foundation’s research in the 1990s it took the average young family just 3 years to save for a reasonable sized deposit whilst today it would take the same family 19 years to save the amount they need.

This explains the paradox we often see in Co-Ownership where people that apply to us are often paying high rents, but are still unable to get a mortgage without our help. The average rent here is £650 per month and a mortgage will cost around £100 a month less on a typical first-time buyer property. The issue is sometimes affordability with banks rightly much more careful now about assessing affordability, sometimes it is people not having stable employment another common experience of this generation of young people, but often it is about not having a sufficient deposit.

Around a third of first time buyers now use the ‘bank of mum and dad’ to get into home ownership and I’m sure I will soon be joining that bank, but for the rest it is the help that Co-Ownership provides that may be their only route to an affordable and secure home.