Is it Time for Twenty-Somethings to Give up the Idea of Owning a Home?

Twenty-somethings wanting to get on the property ladder, face a daunting challenge and understandably many are beginning to give up on the idea altogether. According to the UK House Price Index, as of June 2016, the average cost of buying a house in the UK now stands at a staggering £213,927, that’s up by 8.7% compared to the same time last year. With many mortgage lenders asking for a minimum deposit of 10%, this means that twenty-somethings wanting to buy a house, will need to save a minimum of £21,300. With the average salary of 25 year olds coming in at £27,531, for many, the maths simply doesn’t add up.

So is it the end of the road for twenty-somethings who want to buy or are there options that can offer some help?

Savings Accounts

Although optimism is low amongst the twenty-something demographic, many are still saving and have not given up hope of owning their own property entirely. Those who are saving are faced with a different challenge, that of getting a savings account that pays a good interest rate.

In an ideal world individuals will have been getting money put aside for them from a young age and they are given access to it at a predetermined point during adulthood. They are then able to use this to kick start their own savings, if however, this is not the case, then it is advisable for young people to start saving as soon as they start earning.

When saving, there are of course sacrifices to be made, expensive clothes and fancy holidays are not going to help an individual save a great deal of money very quickly. Other ways to save money quicker are to; move back in with your parents to save on rent, limit yourself to one night out per week/month and try to use your car or public transport as little as you can.  

Help to buy Scheme

In March 2013, the government announced its help to buy scheme, aimed at people who are unable to raise the capital for a deposit and therefore are unable to get on the property ladder.

Part 1 of the scheme is the equity loan and this gives wannabe house buyers with a small deposit of 5% a top up of 20%, so the buyers have a total of 25% towards the price of the house. Having a 25% deposit means access to better mortgage products and the equity loan is paid back at very low rates. The only real disadvantage to this part of the scheme is that it is only available to those looking to purchase a new-build. This part of the scheme ends in 2020.

Part 2 of the scheme is a mortgage guarantee for first time buyers and those wishing to move house. Participants need to have raised a small deposit, 5% and the government will guarantee a further 15% and like part 1 of the scheme the maximum house price is £600,000. Part 2 of the scheme is due to run until December 2016.

Co-Buying

A slightly more alternative way of going about getting on the property ladder is to purchase a property with a friend or a relative. Co-buying is an increasingly popular way of combatting high property prices and hard to secure mortgage products. In principle, this is a really good idea, although there are some caveats that need to be addressed by both parties.

First of all, it is a good idea to draw up a cohabitation agreement, this way, disagreements are less likely to occur further down the line. The next step is to discuss how the financial side of this partnership will work. Generally speaking a 50/50 split is the least problematic way in which to proceed and that is what is so advantageous about co-buying, it halves the cost of everything.

Other Considerations

There are many other considerations to take into account when considering getting on the property ladder. Perhaps the most important consideration currently is that of the wider economy. Most markets are cyclical, meaning they rise over time and then fall or “crash” at the moment some experts claim that we are in a “super bubble” and if this is the case then it is only a matter of time until that super bubble bursts. The catalyst for the crash could be Brexit, but in actual fact no one knows what will burst the bubble.
Bearing this in mind, people buying property in the current economic climate need to be confident that they will be able to pay the mortgage repayments for at least five years. This means that if the market does crash, they are able to avoid the potential situation where they are forced to sell the property at a loss.    

from Finance Girl http://www.financegirl.co.uk/is-it-time-for-twenty-somethings-to-give-up-the-idea-of-owning-a-home/