The generational challenge of rising house prices
Decades of rising house prices have stretched affordability to breaking point for thousands of prospective first-time buyers. The average house price stands at £228,000; eight times the average wage in the UK1. In the last decade alone, house prices have risen by 45%, supported by expansionary monetary policy and a chronic lack of housebuilding. By contrast, wages have risen half as quickly2.
As a result, home ownership has plummeted for younger generations. Ten years ago, 55% of people aged 25-34 owned their own homes. This has fallen to 38%. Also, the average age of a first-time buyer is rising; standing at 33 years old today compared with 31, ten years ago3. The number of first-time buyers may have improved in recent months, but there’s an awfully long way to go to reverse this trend. It’s the upfront cost of purchase, including the size of the deposit, that’s holding buyers back, rather than monthly mortgage costs. UK Finance data4 shows that despite borrowers requiring far larger mortgages, repayments only account for 17% of a first-time buyer’s income, down from 22% a decade ago.
Historically low interest rates have allowed mortgage lenders to offer lucrative mortgage rates. Meanwhile, the average first-time buyer deposit stands at an astonishing £44,6355. It’s no wonder homeownership has been delayed for hundreds of thousands of buyers as they save for longer. For many, owning a home seems a pipe dream, especially if not supported by the Bank of Mum and Dad, or if they’re buying without a partner or spouse. It’s no surprise, therefore, that single-adult households make up 51% of the private rented sector, yet account for just one-fifth of households that own a house with a mortgage6.
Could shared ownership be the silver bullet?
The Government and the mortgage industry have sought innovative solutions to ease the problem for first-time buyers, through the removal of stamp duty and the introduction of the Help to Buy scheme. Despite tackling the core problem of deposit constrained buyers, shared ownership is less well known. In a shared ownership scheme, a buyer purchases a share of a property from a housing association and pays rent on the remainder. The buyer then has the option to buy more of the property over time. Because the purchaser only needs a mortgage for part of a property, the required deposit is a lot lower.
There are already around 200,000 shared ownership homes in the UK, and given the Government’s commitment to supporting affordable homes building, we can expect this figure to increase. In 2015 the Government announced a target of building 135,000 shared ownership homes, superseded by a £9.1bn commitment for= affordable homes. In the 2019 Spring Statement, a further £3bn in funding support was guaranteed for housing associations. Brokers should therefore be prepared to see a higher number of shared ownership applications.
1 ONS House Price Index (January 2019); ONS Average Weekly Earnings (January 2019)
2 ONS House Price Index (January 2019); ONS Average Weekly Earnings (January 2019)
3 ONS English Housing Survey 2017-18
4 UK Finance Data 2018
5 ONS English Housing Survey 2017-18
6 ONS English Housing Survey 2017-18