Help to Buy – only hope for my generation
Out shopping recently, I bumped into a friend who is about 30 years older than me.
Spotting my newly-purchased shoes (a sale item, I should point out, but a treat nonetheless), she told me that when she, like me, was a twenty-something, such extravagances were a no-go because she was saving for a house.
The implication was clear – I should not be buying luxuries.
The problem, I pointed out, is that resisting the odd pair of shoes, walking to work instead of paying for the bus and sacrificing that weekly dinner with friends now makes only the tiniest dent in a deposit.
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Despite a reduction in house prices over the past five years, 2013 has seen them bounce back up again.
The Nationwide's House Price Index for September found that the price of a typical house in the UK – £172,127 – is a whopping 5 per cent higher than a year ago.
The housing charity Shelter recently calculated that the the average first-time buyer house price in England is £139,920 and requires a hefty £27,984 deposit. That's a lot of money.
I worked out recently that I could realistically save about £200 a month if I cut out luxuries – always bring lunch into the office, go to the cinema less, no holidays, things like that.
I reckoned I could live like that for a few years if I had a goal to work towards.
When I saw Shelter's average deposit figure, I realised I would have to adopt this frugal approach for more than 11 years before I could buy a house.
Shelter used the average national salary to calculate that it would take a couple six-and-a-half years to save that amount of money. For a couple with a child, it would be 11.8 years. And for a single person, it could take 14.3 years. Which means that if you start saving aged 25, you won't own a home until you're nearly 40.
A new report by the Post Office shows how much has changed in the last 50 years. In the 1960s, the average first-time buyer was aged 24. By the 1980s they were 28. From 2005 to 2009, the age had risen to 30. But in 2012, when the research was conducted, many said they did not expect to be able to buy a house until they were 35. In Scotland and the North East, first-time buyers said they expected to be 40 before they could own a home.
All of this leaves Generation Rent, as we are called, with a decision to make. We can make a dramatic lifestyle change in an attempt to speed up the process – move to a cheaper part of the UK or even move back in with parents, as many are doing. Almost certainly it means putting off starting a family until we've saved for a house. Or it could mean deciding to buy a property with a partner earlier in the relationship than might be deemed desirable.
The only other option is to sit it out, saving bit by bit and making sacrifices every month over a very long period of time. But when the many who have no other choice but to opt for this course see that the goal is so large and so far away, is it any surprise that they feel a sense of hopelessness and lose the impetus to save? Or perhaps even kid themselves that a higher-paying job or some inheritance is just around the corner?
Shelter has many handy tools to help calculate how long it will take you to save for a deposit, and has amassed many case studies during its campaign for more affordable homes.
As Abi from Reading told the charity: "We could, in theory, start putting about £200 a month away, but it would never bring us anywhere near the amount we'd need for a deposit, and that kind of feels pointless."
The good news is there's now some Government help available for hard-pressed first-timers. In March it launched its Help to Buy scheme, allowing first-time buyers to purchase a new build if they have just a 5 per cent deposit. The rest of the deposit, up to 20 per cent, is borrowed interest-free from the Government for five years.
Next week, the second phase of the scheme begins and both first-time buyers and existing home owners can request a loan for both new build and older properties worth up to £600,000. Borrowers will need a 5 per cent deposit and the lender can get a guarantee from the Government covering up to 15 per cent of the property's value.
Some experts have warned the scheme will fuel a housing bubble and only make matters worse.
But Prime Minister David Cameron insists: "If we don't do this, it will only be people with rich parents to help them who can get on the housing ladder – that is not fair, it is not right."
Indeed, another Shelter survey found that since 2009, 27 per cent of first-time home purchases with a mortgage had included financial help from parents, compared to 17 per cent from 2005 to 2008.
But perhaps renting is the future. A recent Halifax survey of people aged between 20 and 45 found that more than half believed renting rather than buying would become the norm within the next generation. It is already the case in a number of other European countries, including Germany, where in Berlin rental property makes up 90 per cent of the total residential market.
The problem in Britain is that those who let houses are putting up their charges all the time. The typical rent paid has increased by 13 per cent since June 2010, according to Halifax.
I recently lived in a flat with two other friends and our monthly payment increased by £300 in just one year.
Of course, there are so many ways in which my generation is better off. We have more choices, be it in our careers or relationships. We have easier access to education and more opportunities to travel the world. Many would argue that we have a better standard of living. But when it comes to buying a house, we are stumped.
Maybe I should stop buying the odd dress here and there, see my friends a little less, stay in a little more. But the reality is that when all those sacrifices make such a small impression on a deposit, I'll struggle to find the drive.