According to a report published by the research group Institute of Fiscal Studies (IFS), property ownership among people aged between 25 and 34 had fallen 20% in the last 10 years as young people struggle to be able to afford the cheapest home in their area.
The findings also showed that young people with middle middle incomes have felt the pressure of rising house prices much more than any other social group.
Whilst there has been a rise in property prices in Scotland in the last two decades, average salaries have not risen at the same rate. With a rise in demand for rental properties, this has in turn led to rising rents making it difficult for young people to save for their first home.
Young people have had to find alternative ways to get onto the property ladder other than spending several years saving for a deposit whilst also trying to afford rising rents, utility bills and living expenses. Here we look at some of the options open to those looking to buy their first home:
Government saving schemes
The IFS has reported that 78% of young people need to save the equivalent of six months’ income to buy a typical property, compared to 33% twenty years ago.
However, help is available from two Government schemes which are both designed to help you people save for a deposit. The Help to Buy ISA and Lifetime ISA both offer a 25% bonus and users can save up to £200 per month, plus an additional £1,000 when the account is first opened. By saving £12,000 you could earn the maximum £3,000 bonus from the Government. Similarly, the Lifetime Isa can be used to save up to £4,000 per year either in a lump sum or on a regular basis. Save the maximum £4,000 each year and the Government will add a £1,000 bonus. The Lifetime Isa is limited to those aged between 18 and 39.
Ditch the morning coffee
When saving for a deposit it’s essential that you cut down on your outgoings. Cutting back on luxuries and unnecessary purchases can boost your savings pot immeasurably, this includes a morning takeaway coffee (approximately £50 per month if you buy a coffee every day!), eating out, clothes, nights out etc. These all add up – and some people even go a step further by moving in with their parents enabling them to save money that would be spent on rent. This can vastly speed up the rate at which you can save up. Alternatively, you could look at a cheaper rental property or house share. Many homeowners rent out a room in order to boost their income, so this could be worth exploring if moving back in with your parents short-term isn’t an option.
Get a 5% mortgage
Although the days of 100% or interest only mortgages are effectively over, there are a wide range of options available to people who can get a 5% deposit together. However, it’s worth noting that the larger your deposit, the better the mortgage deal so it could be worth spending the extra time saving to reduce your monthly mortgage payments in the long run. You may still struggle with a 10% mortgage as the IFS reported that just 39% of buyers would be able to afford one of the cheapest properties in their local area with this size of deposit.
It could be worth looking into the Help to Buy Equity Loan, whereby borrowers can purchase a home with a 5% deposit, borrowing 20% of the value of the property from the Government and the remaining 75% from a mortgage lender.
The Bank of Mum and Dad
Parental help is often the only way that many people can get onto the property ladder. Cash gifts from parents or taking out a guarantor mortgage are increasingly common. It’s worth noting that should you default on your mortgage repayments, these would fall to your parents to repay.
Buy with a friend
With many people being unable to buy their own home, some young people are buying a home with a friend. However, there are pitfalls with this and it’s important to think it through carefully and agree on what should happen if one party wanted to sell the property.
If you are struggling to get onto the property ladder and would like to find out what deposit you require and the types of mortgage products available to you, talk to The Mortgage Hub today. Our friendly team will be happy to help!
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.