The Halifax building society has found that first-time buyers are saving over £800 a year in comparison with tenants, meaning the ability to afford a mortgage deposit is one of the most significant differentiators for scores of the UK’s younger generations.
Once a mortgage has been secured, first-time buyers are paying an average of £753 per month, just 1% more than the average 12 months ago. At the same time, the average renter is paying £821 per month after the average rent price has gone up by 10% in 12 months.
The size of the gap between renters and first-time buyers varies from region to region. In London, it is at its biggest with buyers being £4,606 a year better off than renters. At the other end of the spectrum, in Northern Ireland owners are £539 a year better off than renters.
All of this means that the ability to afford a mortgage deposit now makes an enormous difference to the long-term outgoings of young people. More profoundly, those who struggle to afford a deposit are destined to struggle even more moving forward, while those who have lump sums of cash available right now will continue to enjoy lower monthly expenses for years to come.
As a result, the gap between the two groups grows larger.
Will 95% mortgages address this problem?
The government has recently announced it will back 95% LTV mortgages for first-time buyers who can only afford a 5% deposit. Many experts say that this new level of accessibility and affordability will help more young people escape the cycle of expensive rent by getting a foot on the ownership ladder.
However, there is another school of thought which says these new mortgages will not help address the issue and that, if anything, they will only make things worse.
The thinking behind this argument is that house prices keep going up and up, especially in the past 12 months of pandemic. The stamp duty holiday has driven market demand to a level rarely, if ever, seen before.
At the same time, the number of homes coming to market has not increased. This means that demand keeps rising as supply remains static. As such, prices go up.
By introducing 95% mortgages, the government might simply be acting to increase demand even further while supply stays the same. The result of this will be higher and higher house prices which will mean the very people the government says it is helping (first-time buyers with limited budgets) are in fact being further outpriced.
The only answer is to build more homes, not least affordable homes. By increasing supply, prices can level off and eventually even fall back to a more naturalistic economic level.
Many think that the government’s current push to simply drive demand is good only for those who already own homes, and those who make profit from helping people buy homes. As these Halifax figures clearly show, the people who need help most are actually being left further and further behind.
