With property prices soaring, wages stagnating, and millennials the first generation in history that will be financially worse off than their parents, it is no surprise that it’s harder than ever to get your foot on the property ladder.
Kicking that first rung even further out of reach? Low deposit mortgages are in short supply, meaning that, for the majority of Britons, the hefty deposit required to buy a house (currently the average deposit requirement sits at £42,836) is the nail in the coffin of their home ownership dreams.
Without any external financial support, it takes an average of eight years to save enough for a deposit; an estimate based on a would-be buyer squirreling away 20% of their take-home pay every month. But for renters, high housing costs make this level of saving difficult, if not impossible. One in five 25-34-year-olds spend over 60% of their income on the same day it enters their account.
The alternative opted for by 3.5m young people in the UK, is to hunker down in the family home and save, save, save, often well into adulthood. With a meteoric rise of 46% in the number of 20-34-year-olds returning home since 1999, this is becoming the norm for many Britons. As campaign group Generation Rent put it: "Young people are facing an impossible choice: either stay, if you’re lucky, living in your childhood bedroom in the hope you can save a deposit – or rent and face a struggle to put money aside. Two thirds of private renters have no savings whatsoever."
For young adults, moving back to the family home can result in a loss of independence and confidence. For “empty nesters”, the return of an extra adult can cost thousands of pounds a year and result in added stress and conflict in the family home. No surprise then that there’s a rise in formal contracts being drawn up for this very circumstance.
The result of all this? There are fewer first-time buyers than ever before and 71% of millennials fear that they won’t be able to afford to buy a home in their lifetime.
At Tembo, we are on a mission to help more people achieve their home ownership dreams. We believe that intergenerational wealth sharing (quite a mouthful, we know) will create new and more equitable pathways to getting you your first set of keys.
So, what exactly do we mean by ‘intergenerational wealth sharing’?
First, let us paint a picture of the wealth gap that exists here in the UK. Over 50s currently hold over 75% of housing wealth in the UK, totalling £2.8 trillion (or £2,800,000,000,000). They also hold 69.7% of all household wealth. Oh, and one in five baby boomers can count themselves as a millionaire. So, there’s that too.
Millennials on the other hand, hold about 6% of housing wealth in the UK. Thanks to stagnant wage growth and low levels of home ownership, young people have struggled to accumulate wealth. This means younger Britons are living more precarious lives than their predecessors, with less financial security and significantly more debt.
Headlines regularly reference the “inheritance boom” which is anticipated to enrich younger generations, as high-wealth baby boomers and older generations progress through old age. But here’s the catch. On average, hopeful buyers won’t see a penny until they are 61 years old. Unlikely to help when looking at buying your first home.
For most parents and grandparents, the desire to help their offspring towards financial security & home ownership is undeniable. In 2019, over 40% of first-time buyers are thought to have had financial help from family members. However due to the majority of boomer’s wealth being tied up in property, until now only the privileged few have had sufficient cash set aside to help their offspring with a deposit.
There are a number of products and schemes available to cash-strapped millennials looking to get onto the ladder. The most well-known of these is the government’s Help to Buy (HTB) scheme.
HTB allows first-time-buyers to purchase a new-build home with just a 5% deposit. This is because a government equity loan – paid by the taxpayer -covers between 20%-40% of a property’s value, with a standard mortgage covering the remainder. The benefits of HTB? Would-be buyers don’t need to wait while they save a deposit, and – thanks to a smaller mortgage – monthly payments will be reduced.
Since launching in 2013, almost 300,000 homes have been bought through the scheme, but despite fans of HTB being quick to sing its praises, a darker side looms large. Help to Buy has been a boon for property developers, raking in £10bn from the scheme, with purchasers charged 5%-8% more than ordinary buyers of new-builds (District34 estimate that number rises to a whopping 37% in London). Despite charging over the going rate and recording record profits, quality leaves much to be desired at these developments. Look no further than the current cladding crisis.
Ultimately, this combination of inflated prices and poor build quality has meant that one in seven Help to Buy homeowners made a loss on their properties in the six years since the scheme launched, despite house prices in their area rising significantly.
Another option available to first-time buyers who are coming up short on their deposit is a joint borrower sole proprietor (JBSP) mortgage, whereby multiple people can be named on the property deeds. Yes, a bigger deposit will help you get your first keys faster. But things can get complicated. If your co-owner stops paying their share of the mortgage repayments, you’ll still be liable. It can also raise issues if you reach a point where one person wants to move, but the other doesn’t. In short – it may not provide the independence first-timers are craving.
Other schemes include guarantor mortgages, or springboard mortgages, whereby a parent or family member stumps up cash or property as collateral. Again, this can be a risky option – with the guarantor liable for the first-time buyer’s entire mortgage. Plus, as seems to be the case with most products aimed at cash-strapped first-timers, interest rates tend to be high.
Finally, for home-owning parents who want to give their children a leg-up onto the property ladder, there’s always equity release. In a nutshell, equity release unlocks value in a property, and releases it as a cash lump sum. It can be a pricey option and many products don't require monthly repayments, so interest can compound. That said, after the scandals of the 80s and 90s, equity release has cleaned its act up and is now regulated by the FCA. There are also now options to pay interest monthly.
It’s clear that the picture isn’t all roses for first-time buyers looking to step onto the ladder. The generational wealth gap has never been bigger, house prices continue to fly past stagnant wages and previous schemes have failed to live up to the hype. But there are an increasing number of new and ethical pathways to home ownership.
Organisations like CreditLadder are helping renters to strengthen their credit history and improve their credit score – often one of the biggest blockers to home ownership - by reporting their on-time rent payments to Experian and Equifax. This is game-changing for long-term renters, particularly those that are freelance or self-employed. Plus, innovative companies like District34 are using their own data analysis to assess commuting patterns and house prices in London to increase home ownership in suitable areas.
At Tembo, we are on a mission to transform lending in the UK. We are making it easier and faster for people to become homeowners, and most importantly we ensure you keep as much of your money as possible, by securing the lowest interest rates on the market. How? Put simply, we help first-time buyers get on the property ladder by increasing the size of their deposit. This is done by arranging a small mortgage on the family home, which doesn’t need to be repaid until the property is sold, the homeowner dies or goes into care.
There are a few key benefits to this approach. Firstly, it means that you avoid the complication of including a family member or friend on the deeds. Want to move from a Victorian terrace in Glasgow to a high-rise apartment in Liverpool? No problem. Fallen out with a friend? We can’t promise it won’t hurt, but you can be sure it won’t affect your mortgage repayments or your credit score. Secondly, in bringing together your family’s combined property assets, we could access market-leading interest rates. Thirdly, a boost gives families who have made financial gains through home ownership a chance to share a portion of that success with their children in a meaningful way, without compromising their own lifestyle.
So, if you’re one of the 71% of aspiring first-time buyers who has lost hope; hang in there. Set up Google alerts to track new products, familiarise yourself with what a good interest rate looks like (our comparison calculator is a good place to start) and follow active campaign groups like Generation Rent and District34 for the latest news.
Most importantly, look to you & yours for a helping hand. A conversation is a great place to start.
Want to see how much you could afford with Tembo? Use our online mortgage calculator. Our smart technology searches the whole market and calculates how much you could save versus market alternatives.