If you had a pound for every time a parent, grandparent or older relative told you ‘buying a house was different in my day,’ well, you’d be a rather rich person!
Most of us like to reminisce, but the truth is that some things were genuinely much easier for previous generations – like buying a house. Although the desire for home ownership is still very strong, the right to own the home you live in seems very far away for some people.
Let’s compare the situation for young professionals buying a house today with getting on the property ladder in the early 1980s. Back then, average wages were closely comparable with house prices, meaning it was affordable for most people to consider buying their own home.
Now, however, the average house price is 5.2 times higher than the average wage, according to Nationwide data, and the gap seems to be getting larger every year – to the point where affording a home and the mortgage payments that accompany it can seem unattainable.
That’s not all. Ever since the stock market crash of 2008, which marked the start of global recession, the average loan to value (LTV) on first time buyer mortgages has fallen.
In the mid 2000s, LTVs as high as 95% or even 100% were commonplace. Lenders were very relaxed, and the mortgage market – in retrospect – seemed over confident.
However, as the recession caused wage stagnation, rising unemployment and falling house prices, many homeowners found themselves in a position where their mortgage was higher than the value of their house.
To stop this happening again, lenders have tightened their belt, and first time buyers are expected to bring a significant deposit to the table. The average deposit today is now £50,000-£60,000 according to PwC, compared to £10,000 in the 1980s and 1990s.
Add to that the fact that economic recovery means house prices are growing year on year, and it genuinely is harder to save up the money to buy your own home. Lenders are very tough on first time buyers, having had their fingers burnt in the past.
The UK government is taking steps to promote home ownership among the young – it has launched a Help to Buy scheme, along with a new lifetime ISA, unveiled last year, to help under 40s save, tax free.
The circumstances are never going to return to what they were thirty years ago – or even ten years ago. Young professionals wanting the get a first foothold on the property ladder today must be prepared to save a large amount of money for a deposit, in order to get the approval needed from your mortgage lender.
If you’re in this situation, the earlier you can start putting money away for a deposit, the better. There is no shortcut for saving, and you want to be sure that, when you come to submit your mortgage application, your lender is likely to say yes.
That way, you can focus on the excitement of buying a house – from choosing the perfect property, to furnishing it to your taste. All in the knowledge that difficult financial circumstances will not interfere with the next step in your life plan.
If you’re unsure about how to save for a deposit for your first home, or would like an illustration of what your mortgage would cost, contact our team today.
If you found this article useful, you may enjoy our recent blog “The Perfect Financial Plan For Women Starting Out”
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