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40% of young adults unable to enter the housing market

There are many benefits to being a young adult – better health, more freedom, and almost-endless career options.

But being able to purchase your own home and moving out from under your parent’s wings is becoming increasingly difficult for many.

Over the last two decades, UK home ownership figures have revealed that approximately 40% of young adults are unable to enter the housing market. This is regardless of whether they have managed to work and save the necessary 10% deposit.

While only twenty years ago, 90% of young adults had the means to supply a deposit and obtain a loan for the remainder of the cost, data from 2016 shows it is now only possible for approximately 60%. Perhaps the area worst hit in the UK in London.

IFS (Institute of Fiscal Studies) research states that just one-in-three young adults will have enough money for a deposit and still be eligible for a loan on the remainder. Worryingly, these figures relate to houses on the low-end of the property market, those which would be ideal for people just starting out.

So why aren’t the younger generation able to participate in this ‘right of passage’ when their parents and grandparents before they were able to? The IFS states two main reasons for the current UK home ownership figures.

The first is the dramatic rise in house prices. Records indicate the price of a house in England has surged an astounding 173%. With most properties not benefiting from increased space or luxuries.

The other reason the UK home ownership figures indicate a lock-out of young adults from the housing market is due to their income not increasing at the same rate as general expenditures.

With their wages increasing only 19% over the last two decades, being able to support themselves while saving up for the deposit is only possible by an estimated 10%. For those already living outside of a home, the often high rent rates for small, or even shared-houses, eats away at any of these savings.

One possible solution that has been suggested is to ease planning restrictions. By allowing developers more flexibility and freedom, the creation of more new houses could help even out the market.

Other initiatives are also underway to aid young adults in entering the housing market, including the removal of stamp duty for those trying to buy their first home.

Source: CRL

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Even the cheapest local homes ‘out of reach for 40% of young adults’

Around four in 10 young adults in England would not be able to buy one of the cheapest homes in their area even if they managed to save a 10% deposit, research has found.

As long as they had a 10% deposit, in 1996 over 90% of 25 to 34-year-olds would have been able to purchase a house in their area if they borrowed four-and-a-half times their salary, the Institute for Fiscal Studies (IFS) said.

But it found that by 2016, that proportion had fallen substantially.

By this time, even with a 10% deposit, only around 60% of young adults would have been able to borrow enough to buy even one of the cheapest homes in their area – leaving properties out of reach for the remaining 40%.

In London, only around a third of young adults with a 10% deposit could borrow enough to buy one of the cheapest homes in their local area, researchers found.

Back in 1996, if they had borrowed four-and-a-half times their salary, 90% of young adults in London could have done so.

173% Surge in average house prices in England since 1997


The findings, looking at how barriers to home ownership have changed over the past 20 years, are contained in a chapter of the IFS Green Budget 2018 – which will be published on Tuesday.

The IFS said the extent to which property prices have raced ahead of incomes has made it increasingly hard to raise a deposit for a home.

In 2016, around half of young adults would have needed to save more than six months of their post-tax income to raise a 10% deposit on one of the cheapest properties in their area, it said.

Just one in 10 would have had to do this in 1996, according to the calculations.

The research also found that after adjusting for inflation, average house prices in England have surged by 173% since 1997, compared with an increase in young adults’ real incomes of just 19%.

 Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one
Polly Simpson, IFS

Polly Simpson, a research economist at the IFS and a co-author of the research, said: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit.

“Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation too.”

The IFS argued that easing planning restrictions would increase home ownership and reduce both property prices and rents.

Jonathan Cribb, another author of the research and a senior research economist at the IFS said: “The most economically productive and wealthiest parts of England – London and the South East – are those with the most restrictive planning constraints.

“It is unsurprising that these areas have also experienced the biggest house price increases. Increasing the responsiveness of construction to house prices is a necessary part of the solution, particularly in these areas.

“Unlike other policy alternatives, this would both help reduce house prices, boost home ownership and reduce rents, benefiting renters, some of whom will never own.”

A spokesman for the Ministry of Housing, Communities and Local Government, said: “This government is committed to helping more people get on the housing ladder and last year saw the highest number of first time buyers for over a decade.

“Through our Help to Buy scheme and the cut in stamp duty for first time buyers we are helping restore the dream of home ownership for a new generation.

“Over 1.1m properties have been built since 2010 and our targeted investment and planning reform will deliver more of the homes communities need.”

Source: Shropshire Star