Prospective homebuyers must now save for up to 24 years for a deposit large enough to secure them a mortgage, claims new research.
The Resolution Foundation think-tank has used the Bank of England’s latest study of household finances to suggest that as house prices are rising sharply, it will now take almost 25 years for low and middle-income households to raise a deposit if they save 5% of their disposable income every year.
Prospective Buyers Must Now Save for 24 Years
This is lower than the time needed just before the recession, but is significantly lower than the three years needed in the 1980s and 90s. Additionally, this news arrives despite interest rates remaining at the record low of 0.5%, as set by the Bank of England (BoE) during the financial crisis.
Chancellor George Osborne has launched a series of Help to Buy schemes, including shared ownership and taxpayer mortgage guarantees for first time buyers, promising to turn generation rent into generation buy.
However, Chief Economist at Resolution, Matt Whittaker, warns that Help to Buy may boost house price rises, pushing housing further out of reach for low-income households.
He says: “To the extent that these schemes have stoked demand so propped up house prices in recent years, they have served to make homeownership even less attainable for many, while increasing the gains flowing to older homeowners who have been the main beneficiaries of the sustained housing boom.”1
The think-tank has raised concerns that the increasing cost of homeownership is aggravating a generational divide – the baby boomers having accumulated financial stability and young workers struggling with lower wages.
Having analysed the BoE’s data, Resolution found that among households headed by under-45s, 28% of non-homeowners believe they will never be able to buy. Among the poorest fifth of households, this grows to 39%.
Co-founder of the Intergenerational Foundation think-tank – which campaigns for benefits for younger households – Ashley Seager, comments: “Today’s wealthy baby boomers found it easy to buy housing a generation or two ago, especially as MIRAS tax relief on mortgages was available to them.
“But now their children and grandchildren cannot access housing in anything like the same way.”1
However, he welcomes Osborne’s recent crackdown on the buy-to-let sector through the restriction on tax relief that landlords can claim.
The BoE’s Financial Policy Committee (FPC), which has the job of preventing future financial crises, also warns that it is becoming increasingly concerned about whether buy-to-let investors are driving an unsustainable boom.
Osborne is currently consulting over whether to give the FPC further powers over buy-to-let, which could cause the mortgage market to dry up.