Research by Equifax confirms that young people are finding it increasingly difficult to get their first step on the property ladder and many will have to rely on financial help from family members. Joanne Atkin looks at the research in more detail
Homeownership in England has stood at 63% since 2013 and that has fallen from a peak of 71% in 2003, but that doesn’t stop people aspiring to be homeowners.
One of the problems in buying your own home, particularly for young people, is saving for a deposit. Add to that paying the monthly mortgage repayments and the associated costs in buying a home such as stamp duty, legal fees, valuation fees, mortgage arrangement fees, etc. It’s hardly surprising that young people are concerned they won’t be able to buy their starter home.
This is backed up by research conducted by YouGov on behalf of credit information provider Equifax. Among the findings it is clear that those who are able to buy a home are increasingly relying on financial support from the Bank of Mum and Dad and/or the Bank of Gran and Grandad.
The Equifax research found that almost nine out of 10 (87%) of the 2,050 people surveyed agree that ‘young people (16-24) today will generally be unable to get onto the property ladder without a considerable amount of financial support from their parents or grandparents’. This is broken down into 45% who strongly agree and 42% who tend to agree with only 8% disagreeing.
Lisa Hardstaff, credit information expert at Equifax, commented: “Over two thirds of Brits (68%) are either very or fairly concerned that the younger generation is finding it increasingly difficult to get into homeownership.
“Perhaps not surprisingly, it is the youngest generations that are the most concerned, with over half (54%) of 18-24 year olds very concerned, followed by 34% of 25-34 year olds. However, the parental generation are worried too, with 29% of those aged 55+ also very concerned.”
Affordability
One of the key issues when buying a home, specifically for the buyer, the lender and the regulator, is whether the borrower can afford to pay back the lender – not just now but in the future. Lenders have a duty to assess the long-term affordability of an applicant.
The affordability checks undertaken by the lender will take into consideration potential interest rate increases as well as significant life events that may affect future repayments. Borrowers should therefore expect to be asked questions about spending habits, childcare costs and future financial plans.
But when it came to checking an applicant’s social media accounts as part of this process, over two-thirds (71%) of respondents to the Equifax research did not believe this was acceptable. So do lenders trawl through people’s social media, such as Facebook, Instagram and Twitter?
The Building Societies Association said it had not heard about mortgage lenders doing this and analysing social media accounts certainly isn’t routinely used.
A spokesperson for the Council of Mortgage Lenders, said: “Some lenders may have data usage policies that incorporate the fact that they may access information from social media accounts.
“On the question of financial suitability, lenders are obliged to undertake an assessment of affordability based on detailed information that they seek directly from the borrower (or via an intermediary). Any wider access to publicly available information from social media accounts is therefore probably more likely to inform any concerns a lender may have about issues like fraud or financial crime, rather than affordability.”
Brexit and house prices
Almost four out of 10 (39%) of respondents to the survey believe that the average cost to buy a home will increase as a result of the UK’s exit from the European Union. This rises to 47% in the younger age group of 18-34 years, which makes sense as younger people tended to vote to remain in the EU.
Just over three out of 10 (31%) thought Brexit would have no impact on house prices and 11% said they will decrease.
Downsizing
In February, the government published a housing white paper and one of the suggestions was to find ways to encourage older people to downsize in order to free up larger family homes. The Equifax commissioned research found that slightly more people support this – 46% as opposed to 40% who were against it. However, this increased to 65% of the younger age group of 18-24 were in favour.
The English Housing Survey, commissioned by the Department for Communities and Local Government, has calculated that 52% of homes in England in the owner-occupied sector are under-occupied. This has risen over the last two decades from 39%. These are not all owned by older people but many would like to downsize if they could.
Research by Legal & General and the economics consultancy Cebr found that almost a third of older homeowners have considered downsizing in the last five years but only 7% actually did. A typical ‘last-time buyer’ lives in a four-bed house, but wants a two-bed property – also the target home of many first-time buyers.
Money worries
Getting on for four out of 10 of those surveyed (37%) who currently have a mortgage said they are concerned about being able to afford their mortgage payments over the next three years. And again it is the younger age groups who worry most about this with 70% of those aged 18-24 concerned about making the monthly repayment.
The biggest negative impact on disposable income over the next 12 months is if utility bills rise and this was cited by 31% of respondents. The older age groups, particularly those over 55, were more worried about this than the other age groups as 47% said this was a worry.
The second most common reason to worry about money, according to 24% of the survey, was due to food prices rising.
As far as savings are concerned, 40% think they will save about the same amount of money this year than they did last year. Only 16% think they will save more and 35% said they will save less.
Interest rates
It has now been eight years (March 2009) since the Bank of England base rate fell to 0.5% and it stayed there until August 2016 when it went down even further to 0.25%. So what do people think interest rates will do going forward? Well, 45% of respondents to the YouGov research think interest rates will rise this year, 32% believe they will stay the same, 5% say they will go down and 18% don’t know.
On the question of whether borrowers are concerned about mortgage rates going up, half (51%) of the survey said they were. Not surprisingly the younger age groups were most worried with 60% of 18-24 year olds and 68% of 25-34 year olds expressing concern.
Meanwhile, 41% of respondents are not concerned if mortgage rates increase, presumably because they are on a fixed rate mortgage, where the monthly payments stay the same regardless of what Bank of England base rate does.
Fixed rates
The majority of people surveyed have a fixed rate mortgage. The most popular is the short-term fix with 30% of respondents having a mortgage fixed for anywhere between two and four years.
Five-year fixed rate mortgages have become more popular recently with 21% of respondents saying they had one. The rise in popularity in mid-term fixed rates is due to rates being at an historic low. Only 4% of people took out a long-term 10-year fixed rate product.
Fixing your mortgage rate for five years or more gives peace of mind that your monthly repayments will stay the same but it’s important to check that you can ‘port’ your mortgage, i.e. take it with you if you move. Also, bear in mind that if you want to redeem your mortgage before the five or 10 years are up, you may incur early repayment charges. Seven-year fixed rates are also available from a handful of lenders.
A quarter of people surveyed (24%) have a variable rate mortgage which could be a tracker, that tracks usually the Bank of England base rate. But some people may be on the lender’s standard variable rate (SVR) and if you are one of those talk to your lender to see what better rates they could offer you.
And 5% of people surveyed have an offset mortgage, which is a type of home loan that is linked to your savings.
Doing things differently
In getting their current mortgage, 57% of respondents would not have done anything differently but 13% wish they had shopped around for a better deal. This rises to 21% for 25-34 year-olds and 37% for 16-24 year-olds.
The younger age group wish they had started saving for a deposit earlier – 49% of those in the 18 to 24 age group and 14% of 25 to 34 year olds.
Almost one in five (19%) of those aged 25 to 34 wish they had calculated all mortgage costs beforehand, such as arrangements fees and stamp duty.
Credit score
One of the important aspects to consider when applying for a mortgage is your credit score.
Lisa Hardstaff explains: “The reality is that mortgage lenders will take a good look at a person’s financial situation when assessing an application. This includes looking at information on their credit report. If they have missed or made a late payment on a credit or service agreement, this could be a cause for concern for prospective lenders.
“Also, having too many credit agreements could indicate that a person is financially overstretching themselves.
Too few, and a lender may find it difficult to assess how the person will perform when it comes to repaying their mortgage.
“We would therefore suggest that anyone considering applying for a mortgage should check their credit report at least six months before submitting their application. This will enable them to ensure that any changes that might need to be made – such as updating their electoral registration or making sure the report data is correct – are done before a mortgage application is made.
“This is also a good time to review how individuals are managing their current credit commitments as establishing a pattern of good financial behaviour gives you the best chance of having a successful application at the interest rate and loan amount that you want.”
Home buyers can get a copy of their Equifax Credit Report, which is accessible for 30 days free, by logging onto www.equifax.co.uk. If customers do not cancel before the end of the 30-day free trial, the service will continue at £9.95 a month, giving them unlimited online access to their credit information and weekly alerts on any changes to their credit file. It also includes an online dispute facility to help them correct any errors on their credit file.
