Rishi Sunak has promised to turn ‘generation rent into generation buy’ in his latest budget announcement with a return to 95 per cent mortgages, previously phased out after the 2008 financial crash.
‘Generation rent’ refers to those aged 18-40, who have effectively been priced out of the housing market due to skyrocketing house prices, low wage growth, and a high cost of living. While the government’s 95 per cent mortgage is intended to make deposits less expensive, it doesn’t take into account the other financial hurdles blocking this generation from getting onto the property ladder.
Despite the economic instability brought about by the Covid-19 pandemic, house prices in the UK have risen 8.7 per cent in the past year (February 2020 to February 2021) and 188 per cent over the last two decades – bringing the average property price in London to £672,051.
Unfortunately, this huge jump in house prices has not been matched by wage growth. Currently the average salary for those under 30 years old is £25,980**, which is only an increase of 67 per cent over the past 20 years. Coupled with the high cost of living – average rent in the UK is £832.25 a month – meaning millennials are paying out almost half of their salaries on rent.
While turning ‘generation rent’ into ‘generation buy’ will take more than 95 per cent mortgages from the government, there are a number of personal finance tips and tricks that can be utilised when saving for your first home and once you’ve moved in:
- Set up an ISA to help save money – creating a Lifetime ISA or contributing to an existing Help to Buy ISA can help you save money for your first home
- Review all direct debits and cancel any luxuries you can live without
- Compare mortgage providers – be sure to get the best mortgage price you can, and don’t be afraid to shop around. Interest rates are currently at a record low, so homebuyers should opt for a long-term, fixed rate mortgage
- Check how competitive your suppliers are – gas, electricity, phone, internet providers
- Don’t just auto-renew insurance policies – use comparison websites to compare policies across a number of providers including home insurance
Even if young people can save up enough to buy their own home, they face further challenges once they’ve purchased. Research from Quotezone.co.uk found that 20-35 year olds in London pay 17.09 per cent more than the older generations when it comes to home insurance. The data showed that this age group paid, on average, £166 a year for home insurance on a three-bed property, compared to the 65+ group which only pay £136.
Greg Wilson, founder of Quotezone.co.uk, said: “Although some steps have been made to support first time buyers, there are still hurdles blocking younger people from getting onto the property ladder – that previous generations never had to face. Generation rent needs to be aware of all the tools at their fingertips to help keep costs down and savings up, such as using our website to find a competitive mortgage deal and compare a wide range of home insurance providers. This will help towards unexpected costs that come with purchasing their first home.”
This post has originally been featured in Property Wire.