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Good afternoon and welcome to this week’s Home Front. Do you worry that you’ll never own a home? Does saving feel like an impossible task? Like trying to wade through treacle?
If you were born after 1980, then your fears are not irrational. The Resolution Foundation warned back in 2018 that one in three people from the millennial generation are unlikely to ever own a home. And that was before house prices hit their historic pandemic highs.
You’re not wrong either, that trying to save money while paying extortionate rent on top of other inflated living costs is very difficult, much like trying to run in water.
Difficult, but not impossible.
Why homeownership makes financial sense
Homeownership, while expensive and inaccessible, remains the most secure form of housing. It’s more stable than private renting and less hard to come by than social housing. So, if you can, there are good reasons to try and access it.
Not only does owning a home mean you won’t be evicted (unless you fall seriously behind on your mortgage), repaying a mortgage as well as the interest on it is effectively a way of saving for old age. At the end of your mortgage, you will own your home, and you can sell it if you need money for other things such as care or, perhaps, to help your children and grandchildren. If it goes up in value, even better. You’ll make some money.
Think of a repayment mortgage as forced saving. I recently checked my mortgage account statement and found that, since buying my home in 2017, I’ve paid off almost £50,000 of my initial loan. I’ll level with you: there is no way I would have saved that much in the same period.
Help for first-time buyers and the end of cheap money?
If you’re thinking, “Yes, but there’s no way I’ll be able to buy a home in the first place”, I hear you. And a few factors are working against most would-be first-time buyers right now. There are:
Government support
Firstly, I benefited from the government’s Help to Buy scheme which allowed me to take out an equity loan as well as a mortgage to buy with a five per cent deposit. This scheme no longer exists, and, at present, the Labour Government has no plans to bring it back. They have, however, told me that they’re looking at ways to “help first-time buyers” so keep an eye on Rachel Reeves’s 30 October Budget.
Interest rates
Unless you’ve been living under a rock, you’ll have noticed that interest rates are still much higher than they were before the Covid pandemic. Last week, the Bank of England decided to keep the base rate at 5 per cent. While mortgage rates have come down for buyers with large deposits or movers with lots of equity (that’s the cash you have in your home), rates for first-time buyers with five or 10 per cent deposits remain at around four or 4.5 per cent.
The Bank of England’s Governor, Andrew Bailey, has said that he expects interest rates to fall gradually but he has warned people in no uncertain terms not to expect a return to the near-zero levels seen after the global financial crisis of 2008.
Make no mistake, the era of cheap money is over. When I took out my mortgage in 2017, I had a rate of around 1.5 per cent. First-time buyers won’t be looking at anything so favourable any time soon.
Bailey has said he expects rates to settle at what’s called a “neutral rate”. This is generally thought to be around 3 per cent. That’s better than where we are right now but it’s nothing like the ultra-cheap money, I benefitted from with my 5 per cent deposit.
Inflation
Next up, while the rate of consumer inflation (CPI) has slowed down, prices remain higher. Again, you don’t need me to tell you this if you’ve done anything recently from a supermarket shop to buying new socks.
This means that even though we are beginning to see an easing in the monetary cycle – this means central banks are no longer raising interest rates – people are not better off. In fact, across many metrics, we are worse off even though average wages have been rising slightly. Private renters, in particular, are harder up because their housing costs continue to rise above the rate of inflation.
Zooming out to take a longer-term view, this means that the buying power of would-be first-time homeowners (like me in 2017) face greater barriers when saving for a deposit, even a 5 per cent one. Most of their outgoings have increased and house prices remain at near-historic highs, despite the moderate falls seen in 2022 and 2023.
Indeed, the latest Government data from the Land Registry says the average price of a property in the UK increased by 2.2 per cent between July 2023 and 2024.
All told, it’s fair to say that homes are more expensive now on average. Not just because prices remain high but because the cost of borrowing to get a mortgage is significantly higher than it was before 2020.
So, does this mean you’ll never be able to buy a home?
If you’re reading this and despairing, don’t. You might still be able to buy a home – if that’s what you want.
The truth is that mortgage lenders need business. They want to find ways to get credit to first-time buyers. That’s why Nationwide recently announced that they’d be lending first-time buyers with smaller deposits as much as six times their salaries. Previously, the maximum amount was generally 4.5 or five times a household’s salary. Other lenders will likely follow suit at some point.
If you want to take up one of these offers, you may not need to save as much as you think.
The average house price in the UK is £285,000. That means a 5 per cent deposit would be £14,250. Of course, you’d need to factor in moving costs and solicitors’ fees but, particularly if you’re in a couple or buying with someone else, it’s not impossible.
However, as lawyers say, “caveat emptor”. That means “let the buyer beware”.
Higher borrowing rates combined with high house prices, which look unlikely to drop dramatically (for now, at least), mean that homeownership has changed.
Average mortgage terms are rising to 35 and even 40 years. This means that young adults who buy now will be paying more interest for longer than people who bought ten years ago or, even, those like me who bought in the late 2010s.
Don’t expect it to be easy, don’t expect it to be cheap. But, equally, don’t rule out homeownership. It might be more available to you than you think. And your future self will thank you for it. Wouldn’t you rather be paying into something you’ll eventually own rather than handing over huge chunks of your income to a landlord? Painful as my mortgage repayments can feel, I know I made the right decision when I see that my money is sitting in the account.
Britain is not the only country in the West with stubbornly high house prices. However, if the Government wants to make sure Britain’s economy continues to grow, they are going to have to think fast and work out how to help first-time buyers. Otherwise, many of the 1.5 million homes they’ve pledged to build will end up owned by investors and buy-to-let landlords instead of owner-occupiers. This scenario would be bad for society because it would stoke inequality further and bad for the economy because private renting is too expensive, meaning renters have less money to spend on other things.
However, any support that the Government does come up with will be balanced on a knife edge.
If it is too generous, it risks inflating house prices beyond what people can afford and making the housing market a precarious place (as the first iteration of Help to Buy which was available on all homes, not just new builds for first-time buyers did). But, if it is not generous enough (like the existing mortgage guarantee scheme which has had low take-up), it won’t be worth the paper it’s printed on.
If you’re thinking about trying to buy a house, here are some top tips from Sabrina Hall, a mortgage broker with more than 20 years’ experience who runs her own advisory business, Kind Financial Services.
Sabrina’s top five tips are:
1. Check your credit file to make sure everything is accurate and up to date. If there are any issues, then you can speak to the credit reference agencies to have them corrected before applying for a mortgage. An issue could be a default applied in error. “This happens sometimes with utilities companies if you move house or change company,” Hall explains. “So, it’s definitely worth checking.
2. Speak to a mortgage adviser and get an affordability assessment before going to a lender or looking at homes you’d like to buy. “The amount that each lender will lend varies drastically. A mortgage advisor can help you understand what the different options are. This will help you to make sure the price range you’re looking within is accurate. And, you never know, you might be able to borrow more than you think,” Hall says.
3. Make sure that your deposit is “provable and accessible”. This means that it is in a bank account and ready to go. “If you were to say that your deposit is being sent over by your aunt who lives in Canada, for instance, this will be a sticking point for lenders and estate agents because they have to do anti-money laundering checks and they need to know that you are ready to go once you’ve made an offer.”
4. Try and save as much as you possibly can. “The more deposit you have, the better the interest rate you will get,” Hall says. “Saving lots short-term will benefit you in the long-term.”
5. Make sure your paperwork is ready. “If you’re self-employed, make sure you’ve got all of your taxes up to date and all of your documentation ready,” Hall says. “And if you’re employed, make sure you have pay slips and bank statements ready.”
Key Housing
Some very bleak statistics were published by the Ministry of Housing Communities and Local Government (MHCLG) at the end of last week.
The number of households facing homelessness exceeded 320,000 between 2023-2024, the highest figure on record.
This is an eight per cent rise on 2022-2023 and means that the population of homeless people in England is now greater than the population of Nottingham.
The number of households forced to live in temporary accommodation remains at record levels with 117,450 households housed like this by their council. That’s a 12.3 per cent rise from last year.
As of 31 March 2024, a fifth of all households with children in temporary accommodation (22.5 per cent) had been there for five years or more. There are now 151,630 children living in temporary accommodation, which is enough to fill 5,700 classrooms, according to the charity Crisis.
Just let that sink in. More people are becoming homeless. More lives are being ruined. Council support is being placed under even greater strain. The taxpayers’ bill for temporary accommodation will rise.
This is one of the most pressing issues facing the Government. The only way out is to build social housing. The question is, will Rachel Reeves move some money around to do that in the Budget?
And, finally, the Renters’ Rights Bill returns to Parliament this Wednesday. I’ll be speaking to Housing Minister Matthew Pennycook about it so do keep an eye out for the interview.
Ask me anything
This week’s question has come via a reader on Instagram. They want to know if “Labour’s renters’ reforms will impact landlords negatively?”
The short answer is that it depends on what you think of as a negative impact.
The end of ‘no-fault’ Section 21 evictions will mean that private landlords cannot evict renters so easily. However, they will still be able to get their homes back via Section 8 if they need to sell the property or if their tenant is in serious rent arrears.
It’s also true that the rumoured announcement coming down the tracks from Energy Secretary Ed Miliband requiring landlords to upgrade the energy efficiency standards of the homes they rent out will cost some landlords money.
Please keep your questions coming: @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email vicky.spratt@inews.co.uk.
Vicky’s pick
I was unwell with Covid after the Labour Party conference in Liverpool. Apologies to anyone who had hoped to catch me at one of the events I was due to speak at in Birmingham at the Conservative Party Conference.
However, this did mean I was able to watch the new series of Industry from start to finish. The show’s creators Mickey Down and Konrad Kay should be applauded for making ESG investing sound totally gripping, dramatising Liz Truss’s disastrous mini-budget and the way that they skillfully grappled with class in the later episodes of this series. My only note, without dropping any spoilers, is that they could have done more of the latter.
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