Getting on the property ladder
I still remember the day I made an offer on my first property. It was shortly after the millennium, when house prices had displayed some healthy growth for a couple of years and mortgage lending was incredibly easy to obtain.
Although I had only been in employment for a year, after graduating, and had only managed to save up a small deposit, there was no shortage of mortgage lenders keen to make me a customer.
This was back in the days when a little over £100,000 would buy you an upmarket one bedroom apartment in a South East market town and the Bank Rate was hovering around the 4% level, having fallen from 6% a couple of years earlier.
Looking on the Internet now, a similar property is on the market for 80% more than the price not even ten years ago, and that is after the house price falls we have witnessed in recent years.
The property market enabled me to trade up to a two bedroom house and then, shortly afterwards, an even larger house, simply by cashing in the ‘profit’ made on the sale proceeds. In fact, for a number of years, I managed to supplement my salary with healthy house price inflation. Those were certainly the good times.
Things have changed radically since then. The Bank Rate has fallen to a historic low of 0.5% and remained there for over a year. With the UK economy still in a fragile state, there are no clear signs that it will increase again quickly in the near future.
New mortgage lending remains near to impossible to obtain, particularly for first-time buyers with smaller deposits. Even with regular calls from the Government to increase lending, the banks remain very tight with what cash they have, preferring instead to shore up their balance sheets.
The property market itself remains in a febrile state. Whilst average house prices have been slowly recovering over the past year, supply and demand remains at reduced levels, which makes some of the figures we see being published quite artificial.
A new report from the Chartered Institute of Housing has claimed that the ‘golden age’ of home ownership has come to an end. As a result, more people need help becoming home owners in the future.
Home ownership and getting on the property ladder remains a big focus for many people in the UK. Unlike our neighbours in continental Europe, ownership rather than renting is favoured by the majority. This desire to own the property in which we live can place a big strain on meeting our other financial objectives, particularly when we are not prepared to sacrifice elements of our expenditure to get in the best financial position to make a property purchase.
There are no signs that the golden age of home ownership will ever return. In fact, without substantial parental support to get onto the housing ladder, it is difficult to see how young people today will ever realistically afford to become home owners until much later in life. This could result in a big cultural shift, with adult children remaining at home for longer or choosing to rent property rather than buy.
It could also prompt parents to consider advancing their inheritance so money is made available during their lifetime rather than after death. Regardless of the methods used to assist with home ownership, it will require careful Financial Planning to consider all of the options and make the best choices.