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40% of young adults unable to enter the housing market

There are many benefits to being a young adult – better health, more freedom, and almost-endless career options.

But being able to purchase your own home and moving out from under your parent’s wings is becoming increasingly difficult for many.

Over the last two decades, UK home ownership figures have revealed that approximately 40% of young adults are unable to enter the housing market. This is regardless of whether they have managed to work and save the necessary 10% deposit.

While only twenty years ago, 90% of young adults had the means to supply a deposit and obtain a loan for the remainder of the cost, data from 2016 shows it is now only possible for approximately 60%. Perhaps the area worst hit in the UK in London.

IFS (Institute of Fiscal Studies) research states that just one-in-three young adults will have enough money for a deposit and still be eligible for a loan on the remainder. Worryingly, these figures relate to houses on the low-end of the property market, those which would be ideal for people just starting out.

So why aren’t the younger generation able to participate in this ‘right of passage’ when their parents and grandparents before they were able to? The IFS states two main reasons for the current UK home ownership figures.

The first is the dramatic rise in house prices. Records indicate the price of a house in England has surged an astounding 173%. With most properties not benefiting from increased space or luxuries.

The other reason the UK home ownership figures indicate a lock-out of young adults from the housing market is due to their income not increasing at the same rate as general expenditures.

With their wages increasing only 19% over the last two decades, being able to support themselves while saving up for the deposit is only possible by an estimated 10%. For those already living outside of a home, the often high rent rates for small, or even shared-houses, eats away at any of these savings.

One possible solution that has been suggested is to ease planning restrictions. By allowing developers more flexibility and freedom, the creation of more new houses could help even out the market.

Other initiatives are also underway to aid young adults in entering the housing market, including the removal of stamp duty for those trying to buy their first home.

Source: CRL

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Even the cheapest local homes ‘out of reach for 40% of young adults’

Around four in 10 young adults in England would not be able to buy one of the cheapest homes in their area even if they managed to save a 10% deposit, research has found.

As long as they had a 10% deposit, in 1996 over 90% of 25 to 34-year-olds would have been able to purchase a house in their area if they borrowed four-and-a-half times their salary, the Institute for Fiscal Studies (IFS) said.

But it found that by 2016, that proportion had fallen substantially.

By this time, even with a 10% deposit, only around 60% of young adults would have been able to borrow enough to buy even one of the cheapest homes in their area – leaving properties out of reach for the remaining 40%.

In London, only around a third of young adults with a 10% deposit could borrow enough to buy one of the cheapest homes in their local area, researchers found.

Back in 1996, if they had borrowed four-and-a-half times their salary, 90% of young adults in London could have done so.

173% Surge in average house prices in England since 1997

IFS

The findings, looking at how barriers to home ownership have changed over the past 20 years, are contained in a chapter of the IFS Green Budget 2018 – which will be published on Tuesday.

The IFS said the extent to which property prices have raced ahead of incomes has made it increasingly hard to raise a deposit for a home.

In 2016, around half of young adults would have needed to save more than six months of their post-tax income to raise a 10% deposit on one of the cheapest properties in their area, it said.

Just one in 10 would have had to do this in 1996, according to the calculations.

The research also found that after adjusting for inflation, average house prices in England have surged by 173% since 1997, compared with an increase in young adults’ real incomes of just 19%.

 Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one
Polly Simpson, IFS

Polly Simpson, a research economist at the IFS and a co-author of the research, said: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit.

“Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation too.”

The IFS argued that easing planning restrictions would increase home ownership and reduce both property prices and rents.

Jonathan Cribb, another author of the research and a senior research economist at the IFS said: “The most economically productive and wealthiest parts of England – London and the South East – are those with the most restrictive planning constraints.

“It is unsurprising that these areas have also experienced the biggest house price increases. Increasing the responsiveness of construction to house prices is a necessary part of the solution, particularly in these areas.

“Unlike other policy alternatives, this would both help reduce house prices, boost home ownership and reduce rents, benefiting renters, some of whom will never own.”

A spokesman for the Ministry of Housing, Communities and Local Government, said: “This government is committed to helping more people get on the housing ladder and last year saw the highest number of first time buyers for over a decade.

“Through our Help to Buy scheme and the cut in stamp duty for first time buyers we are helping restore the dream of home ownership for a new generation.

“Over 1.1m properties have been built since 2010 and our targeted investment and planning reform will deliver more of the homes communities need.”

Source: Shropshire Star

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Calls to cut Stamp Duty as mortgage approvals for house purchase slide

The boss of Spicerhaart’s mortgage broking arm has called for a Stamp Duty cut for everyone as bank data revealed yet another slump in mortgage approvals for house purchase.

Banking trade body UK Finance estimates that high street lenders approved 45,549 mortgages for home purchase last month, down 3.8% annually.

Meanwhile, remortgages continued to dominate the market, with approvals growing 18% annually to 31,748.

John Phillips, group operations director at Just Mortgages and Spicerhaart, said Stamp Duty was stifling the whole market so it would be better if that tax was cut for everyone.

He said: “This spike in remortgaging is most likely due to short-term deals coming to an end and home owners looking to lock in low rate fixed deals amidst ongoing speculation that rates will go up later in the year.

“For house purchase to really pick up, the Government needs to think about making some real changes. First-time buyers have seen some good initiatives – Stamp Duty cuts and Help to Buy – but they are obviously not enough to really get things moving.

“Data released by Hamptons International revealed that it now takes an average of ten and a half years for first time buyers to raise a 15% deposit, rising to 17 years for a single Londoner.

“This is crazy – it shouldn’t be that difficult for people to purchase their first home and more needs to be done to help. Ideally, I would like to see Stamp Duty cut altogether, for everyone, because it is really stifling the market.”

Eric Leenders, managing director of personal finance at UK Finance, said: “May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed-term mortgages came to an end and home owners took advantage of a competitive market to shop around for attractive deals. Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise.”

Commenting on the figures, Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “This is more of a spring bump rather than bounce as approvals for house purchases were lower at a time when we would have expected increased activity, even though gross lending is considerably higher, boosted by remortgaging.

“Many buyers and sellers are sitting on their hands and those that are recognising the new reality in this price-sensitive market are negotiating hard but transactions are taking longer as a result.

“Encouragingly, the number of listings and viewing appointments is rising, but choosy buyers are taking their time to make decisions.”

Source: Property Industry Eye

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House purchases at start of year best for a decade

Homeowner purchases in February reached their highest level for that month since 2007, according to UK Finance.

According to the trade body’s latest mortgage trends report there were 50,000 purchases in February 2018, when home movers and first-time buyers are combined.

The growth came from first-time buyers, with 25,200 of these mortgages completed in February 2018, which is 2.4 per cent more than in the same month a year earlier.

Meanwhile home mover mortgages remained flat at 24,800.

Jackie Bennett, director of mortgages at UK Finance, said: “Homebuyers have shaken off the winter blues, with purchases by first-time buyers and home movers reaching their highest levels for February in over a decade.

“Remortgages are also up year-on-year, as homeowners look to fix costs amid anticipation of further interest rate rises.

“Meanwhile the buy-to-let (BTL) market continues to operate at stable but subdued levels, due in part to the impact of recent legislative and tax changes.”

Both average loan-to-value and loan-to-income multiple have remained stable over recent months for home movers and first-time buyers.

The average loan-to-value and loan-to-income multiple for first-time buyers in February was 84.3 per cent and 3.59 respectively while for home movers they were 72.3 per cent and 3.41.

Average loan sizes have increased for both types of buyer as house prices have increased, reaching £138,150 for first-time buyers and £179,800 for home movers.

There were also 35,400 homeowner remortgages completed in February, which was 11.3 per cent more than in February a year earlier. The £6bn of remortgaging in the month was 11.1 per cent more year-on-year.

But buy-to-let home purchase mortgages fell by 8.8 per cent, with 5,200 mortgages completed in the month.

There were also 14,100 buy-to-let remortgages completed in February, which was 20.5 per cent more than in the same month a year earlier.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Buyers and sellers are showing, once again, that those prepared to negotiate hard are still getting on with their lives, albeit at slightly softer price levels.

“Encouragingly, first-time buyers are taking advantage of the abolition of stamp duty announced at the end of 2017, as well as a more level playing field with buy-to-let investors, with the latter’s numbers noticeably shrinking as revealed in this report.

“Although it is sometimes tough for first-time buyers, many are showing that they would prefer to buy rather than rent, although clearly many have no option unless they have help from the Bank of Mum and Dad.

“Looking forward, we expect more of the same – no boom or bust but a steady market with realistic pricing.”

Source: FT Adviser

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House purchases fall as remortgaging drives lending growth

Mortgage lending grew 4.9% in February to £19bn year-on-year, however this appears to have been driven by a rise in remortgaging to replace a collapse in house purchase approvals.

The £19bn total last month was also down almost £3bn on January and below the monthly average of £21.4bn for 2017.

According to the data from UK Finance, 33,110 house purchase mortgages were approved by just the high street banks in February, down by 10.8% compared to the same month last year. In contrast, 25,999 remortgages were approved by the same lenders, up 9.7% compared to February 2017.

Other secured lending was also hit, with 8, 615 transactions completed in February, down 3.9% on the same month last year. The trade body’s latest monthly lending update also appears to show that much of the growth may be coming from smaller lenders. While the £19bn February figure was a 4.9% overall increase, the high street lenders accounted for just a 1.8% rise in lending to £11.3bn.

Lock-in to rates

UK Finance managing director of personal finance data Eric Leenders said: “There has been an increase in remortgage approvals compared to last year, as borrowers look to lock-in to attractive deals amid speculation of further interest rate rises later this year.

“We are also seeing a continuing rise in credit card spending, reflecting the growing number of transactions carried out using cards, while other forms of borrowing such as overdrafts continue to fall.”

He added: “Meanwhile real wages continue to be squeezed by inflation, impacting on consumer confidence and retail sales. This pressure on household incomes should ease in the coming months, as the effect of the fall in sterling begins to fade and the strong labour market leads to a better outlook for wage growth.”

Lower lending in March?

IRESS principal mortgage consultant Henry Woodcock noted that the year had begun with some positive market indicators and although buy-to-let activity remained subdued, the number of first-time buyers and small deposit borrowers has been on the increase.

“With over 20 lenders increasing their rates in the last few weeks, house prices rising slowly, and the Bank of England signalling a May rate rise, we could see borrowers scramble to secure the best mortgage deals before the anticipated rise,” he said.

“We should also note the latest Royal Institute of Chartered Surveyors (RICS) housing market data, which shows the average number of properties on estate agent’s books hit new lows in February and newly agreed sales also dipped.

“So, it will be interesting to see if this leads to lower lending in March,” he added.

Buy-to-let activity

Just Mortgages and Spicerhaart group operations director John Phillips, agreed that the more significant news was remortgage approvals rising more than 9% in number and value compared to a year ago.

“This will most likely be because there is speculation of further rate rises, so borrowers are looking to lock in low rates now,” he said.

“It could also be to do with buy-to-let changes. Two years on, many of those who acted at that time will be coming to the end of their mortgage deals which could also explain some of the rise in remortgages.

“I think we will also see more activity in buy-to-let sector borrowing in the next week or so, because from April 1, the amount landlords can offset when calculating their tax bill drops from 75% to 50%,” he added.

Source: Your Money