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Buying a house seems harder to achieve in the UK than it ever has before, as reports suggest that first-time buyers are facing the toughest conditions to purchase in generations.
Buying a property is a major life milestone, and a crucial step to stability – so why is it so difficult?
Before we explore the complex landscape that is the UK’s property market, and the inherent issues preventing prospective first-time buyers from getting onto the property ladder, it is important to gain an understanding of what makes homeownership so desirable.
The Benefits of Homeownership
Homeownership, for one, represents stability. The rental market is unstable and saturated, with rising costs making it more difficult for households to establish a real domestic base.
Crucially, paying towards rent is simply paying money towards another homeowner, as if for a service.
Meanwhile, paying a mortgage represents paying money towards a tangible asset – a permanent shelter, with no risk of sudden evictions or unexpected moving stresses (apart from in a small handful of specific situations).
Not only is the asset yours, but you can treat its value as money that remains ‘yours’ too, and which can even accrue value passively as the value of property continues to increase.
This last part is especially crucial, as investment in property can be a futureproof strategy for ensuring later-life financial wellness.
Having money accrue value as equity in your home gives you the opportunity to access it later on, whether by taking a lifetime mortgage to access your equity and keep your house, or by selling it and downsizing (pocketing the difference in the process).
Mitigating Factors
Owning your own home is a huge step towards personal and family security, and a great financial move given a property market that trends upwards.
However, getting on the ladder is far easier said than done, and partially due to the reason owning property is so desirable financially.
For one, most homebuyers are doing so with a mortgage, wherein the value of the house is lent to them by a bank or building society.
Lenders typically expect buyers to have a significant portion of the home’s value immediately available as a deposit, with smaller deposits attracting higher rates of interest on the mortgage.
Many cannot afford this, let alone the ancillary legal and administrative costs associated with buying.
Meanwhile, the ever-rising value of property makes it harder and harder for first-time buyers to afford a home at all.
This is exacerbated by stagnation elsewhere in the economy, particularly with regard to wages; stagnated wages against rising costs have increased the affordability gap, making it far harder for the average worker to afford property.
Should You Consider Shared Ownership?
Shared ownership is an option for first-time buyers that helps by reducing the need for a large deposit.
Run by housing associations, this scheme allows individuals to buy a share of a property, typically between 25% and 75%, while paying rent on the remaining share.
This arrangement requires a smaller mortgage and makes homeownership more accessible.
Eligibility criteria include a maximum household income of £80,000 (or £90,000 in London) and being a first-time buyer, someone who previously owned a home, but cannot afford to buy now, or someone forming a new household.
The primary benefit is the lower initial cost. However, buyers are responsible for the full maintenance and repair costs, even though they only own part of the property.
Shared ownership properties are usually leasehold which complicates the resale process and potentially involves additional costs like lease extensions.
Also, sub-letting is not allowed unless you have full ownership. There is also the risk of eviction.
What About Partnering Up?
Buying a house with friends can make it easier to become a homeowner since you can pool your money for a bigger deposit and get better mortgage deals. However, there are a few things to watch out for.
First, you’ll need to draft a formal agreement, like a Deed of Trust, to spell out each person’s contributions, rights, and responsibilities.
This should include details on how you can sell the property, who gets first dibs if someone wants out, and how you’ll split the sale proceeds.
It’s crucial to set a budget, be open about your finances, and use a joint account for shared expenses.
Also, keep a list of who bought what and make a will, especially if you’re buying as tenants in common.
One big downside is that everyone is jointly responsible for the mortgage, so if one person can’t pay, the others have to cover the difference.
That’s why it’s important to have thorough discussions and get legal advice to make sure everyone knows what they’re getting into.
What Else Can You Do?
Apart from the above, there is little you can do to actively change the circumstances that make buying property so hard.
All you can do personally, is avail of the best financial products on offer, and maximize your savings in order to maximize the amount you can put towards a deposit.
Lifetime ISAs are a crucial choice here, given the massive contribution the government can make towards your deposit.
