Home ownership. Compared to renting from a private landlord, it’s a no-brainer. Monthly payments are cheaper. As long as you can pay no one will kick you out. You can have pets, decorate, and put up political posters. And you get to keep it.
For all these reasons, I would rather own my home – as would most young adults. But according to the latest Halifax survey for Generation Rent, the number of 20-45-year-olds who don’t want to own is rising – from 24 per cent of non-home owners in 2011 to 29 per cent now. Only 43 per cent are actively saving for a deposit.
A 5 per cent shift is hardly a dramatic reconfiguration of Generation Y’s aspirations but it is a sign that rampant house price inflation is beginning to wear on young Britons who were raised to believe that hard work gets rewarded. The past two years have seen a 20 per cent increase in the price of the average first home, and it would be an understatement to say wages have not kept up. Even if your income permitted it, there seems little point in saving for a deposit if it will just be wiped out by yet more inflation.
Halifax is dismayed by these findings, pointing out a “clear disconnect” between the perceptions of their survey respondents and the “reality” of the housing market. After all, there has been an increase in first-time buyers to 311,000 in 2014, the highest number since 2007. But between 2002 and 2007, the average number of new homeowners was nearly 400,000 a year. Since 2007 the annual shortfall against that number has added up to 1.2 million households who haven’t bought a home and they’ve ended up in the private rented sector or living with their parents.
The rate of new home-owners has a long way to rise before we’re back at a pre-crisis equilibrium. Halifax reckons that the government’s Help to Buy scheme and the 195 different 95 per cent loan-to-value mortgages available on the market would boost buyer numbers even higher if only there was more communication of the options on offer.
It’s an interesting point. I took to the internet to see if I could buy a house near where I live on the frontier of gentrification in east London. My wife and I rent a two-bedroom flat at the cost of £1000 a month. Nearby there are similar properties going for £250,000.
Briefly allowing myself to dream that we had a deposit of £50,000, a price comparison website told me a £200,000 mortgage would cost £817 a month to pay off. Returning to reality, a 95 per cent mortgage of £237,500 would set me back £1188 a month – more than my rent, but at least a) I wouldn’t need to save anything and b) all the reasons I listed at the start.
Maybe I could buy after all, I thought. I went on Halifax’s own online mortgage calculator to see what sort of loan they’d be willing to offer us, seeing as we’re the average would-be first-time buyers they’re so concerned about. Let’s say we’re on the average household income for London of £35,740.
It turns out Halifax is very much not our ticket out of the private rented sector – on the basis of our income they would lend us an underwhelming £153,682. Enough for somewhere up north but for a home with room for two adults and a child anywhere near my job: no chance.
If we wanted to buy a property nearby we would need a deposit of £97,000 or a household income of £63,000. On a national scale, it is not much better. The average first home costs £208,000 and you can only get a 95 per cent mortgage on that if you earn £52,000 – the median income is £29,636.
Source: Generation Rent; ONS, GLA and Halifax data.
The awkward truth for Halifax is that houses are simply too expensive and not even 95 per cent mortgages will overcome that if an average earner can’t access them. The bank recognises that we need to start matching demand for homes with supply and that involves building 2.5 million homes in the next decade.
In the meantime, those millions stuck renting shouldn’t have to tolerate a second-class tenure. Reform of the sector could extend nearly all the benefits of ownership to tenants: rent control could bring costs down, while a shake-up of tenancy law can start protecting tenants from eviction at a landlord’s whim, and give them greater latitude to make their house a home. As for tenants actually getting to keep the property, we’re working on it.
Dan Wilson Craw is Communications Manager for Generation Rent.