Homeownership among young adults dramatically down – especially in the South East

Michael Lloyd

February 16, 2018

The amount of young homeowners has significantly decreased, with just one in four middle-income young adults owning their own home, down from two in three 20 years ago.

The Institute for Fiscal Studies found that while homeownership for young adults has fallen furthest in the South East, it has also fallen in every region and nation in Britain.

The proportion of 25 to 34 year olds who own their own home has dropped by 32% in the South East (from 64% to 32%) and by over 10% in every region.

Andrew Hood, a senior research economist at the IFS and an author of the report, said: “Homeownership among young adults has collapsed over the past  years, particularly for those on middle incomes.

“The reason for this is that house prices have risen around seven times faster in real terms than the incomes of young adults over the last two decades.”

The homeownership rate of middle income young adults is now closer to those with low incomes than those with high incomes.

A quarter (27%) of middle income 25 to 34 year olds owned a home in 2015-16 compared to 8% of those with low income (lowest 20% for their age) and 64% of those with high income (highest 20% for their age).

Over the past 20 years, average house prices have grown aroundseven times faster than the average incomes of young adults.

The average (mean) UK house price was 152% higher (2 ½ times as high) in 2015–16 than in 1995–96 after adjusting for inflation, but the average (mean) after-tax family income of 25 to 34 year olds grew by only 22% in real terms over those 20 years.

For nearly 90% of 25 to 34 year olds, average house prices in their region are more than four times their annual after-tax family income; for nearly 40% house prices are more than 10 times their income.

Two decades ago, less than half of young adults faced house prices of more than four times their income, and less than 10% faced house prices of more than 10 times their income.

Simon Heawood, chief executive at Bricklane.com, said: “It is important to address the crucial first step of getting on to the property ladder – saving up for a deposit.

“The recent government cut to stamp duty, while a step in the right direction, has not gone far enough and does not help those still saving for that first deposit.

“With the average deposit for first-time buyers in the UK at £33,000, and an average wait of eight to 10 years to reach it, it’s clear that much more needs to be done to help people on their journey.”

“As ISA season approaches, first-time buyers will be considering the best way to save so that they can make their money go further, reducing their waiting time to get on the first rung of the ladder. Even faced with an interest rate rise on the horizon, saving in cash offers little reward.

“Our research shows that first-time buyers can save up for a deposit five years faster by putting their money into property with a property ISA.”

Gemma Harle, Intrinsic mortgage network managing director blamed house prices rising, lower LTVs and more regulation since  the financial crisis of 2008.

She said: “The dramatic shift in the housing market for first time buyers is brought to light with a shocking 38% drop over a 20 year period.

“Some of this is down to a surge in house prices, which has not been met by a corresponding jump in salaries.

“However, it is also because the generations of first time buyers do not have the same access to funding as those before them. Over the past 25 years there has been a huge shift in regulation and taxation that has changed the game.

“Dial the clock back to 1995 and first time buyers could access 95% or 100% mortgages, there was interest only options, and many didn’t even require financial advice. Following the financial crisis of 2008, this shifted and rules and regulations on lending tightened following the Mortgage.”

She added:  “This has combined with an increase in stamp duty that means people are moving less frequently than they used to.

“This lack of movement means there is a substantial lack of supply. But with the recent shifts in buy-to-let taxation, supply could open up.”

Ishaan Malhi, chief executive of online mortgage broker Trussle, said: “In the last two decades, there’s been a seismic shift in homeownership in the UK. For young adults on average incomes, the new landscape looks a little bleak.

“These squeezed millennials have seen the average house price rise seven times faster than their income. An astonishing statistic which shows just why homeownership has collapsed among this age group.

“The recent changes to stamp duty rules should offer some hope for those striving to get on the ladder. But the government needs to go much further if we’re to have any chance of balancing the scales again for young adults.

“It’s no secret that we need more investment in housebuilding to increase the supply of affordable homes. But we also need more forward-thinking, innovative policies to address the challenges of affordability and space in the UK’s cities.

“The government has pumped a lot of money into demand side policies, but we must see firmer action on the supply side, if we’re to house the next generation.”

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