Buying a first home could really be just a dream by 2026 for all but the well off

The dream of home ownership for middle income Britain, individual buyers and those unable to draw on family wealth will be over in the next decade without urgent action, according to a major lender.

The Government, housing industry and mortgage industry need to act or owning a home will become possible only for wealthy young first time buyers, says the study from Bank Santander.

The vast majority of young people want to buy a home with nine in 10 aspiring to home ownership but by 2026 just one in four under 34s will achieve that goal, says the national survey of 5,002 non-home owners aged 18 to 40 years.

Over half, some 51%, of those surveyed said that owning their own home is one of their top life goals but 70% of potential first time buyers believe that the dream of home ownership is already over for many young people, with 64% expecting home ownership to fall for future generations.

The study finds that the sharpest fall in first time buyers has been among those on middle incomes, taken as being between £20,000 and £30,000 in 2019, with home ownership rates falling from 65% in 1996 to 27% two decades later.

Of the new buyers entering the market today, 64% have household incomes of more than £40,000 and just 16% are individual buyers.

‘It’s clear that while the aspiration to own a home is just as strong as in previous generations, it’s a dream that is looking increasingly out of reach. Without change, homeownership in the UK is at risk of becoming the preserve of only the wealthiest young buyers over the next decade,’ said Miguel Sard, managing director of Santander Mortgages.

‘This report should be a wake-up call for industry and the government to think more creatively to keep the home ownership dream alive for the next generation of first-time buyers,’ he added.

The biggest barrier cited by first time buyers to getting on the ladder is raising a deposit at 30%, followed by getting a mortgage based on their income at 15%, the research also found.

The challenges faced by today’s first time buyers include house price inflation outstripping wage inflation at 47% compared to 18% in the last 10 years, as well as levels of student debt and the costs of childcare.

The average age of a first time buyer has increased from 25 to 33 years old in the last two decades, and 40% have already started a family. As a result, Santander found that the most sought after first time buyer property is now a three bedroom house.

Buyers’ ability to get onto the property ladder is increasingly dictated by the Bank of Mum and Dad and family inheritances, the report suggests. While industry data shows that 39% of first time buyers had help from living family, and 10% from an inheritance, Santander’s research found that 40% of potential first time buyers were relying on an inheritance to boost their deposit.

But the costs of ‘later life’, such as care, could lead to future financial challenges for those ‘gifting’ wealth as well as those expecting an inheritance.

Santander’s research also found that aspiring home owners are underestimating the size of the deposit they need to save. With the majority of mortgage borrowing limited to 4.5 times gross salary, the deposit amount buyers’ in each region say they are looking to save would price individuals, or households relying on a single middle income, out of every region in the UK.

Despite their ambitions, Santander’s survey found that 42% of potential first time buyers have saved nothing at all towards their first home. Typically, men have saved twice as much as women at £11,660 compared to £5,620, while one in three men and nearly half of women have not saved anything.

Santander’s research found that 73% of people surveyed believe that the Government should do more to help first time buyers, 37% want to see Help to Buy extended beyond 2023, some 35% want a cap on rent prices, and 33% would like to see the stamp duty cuts, introduced by the Government in November 2017 for first time buyers, extended to the first £500,000 of a property’s value.

The report calls for industry and the Government to think radically and work together to explore a range of new ideas to ensure the homeownership dream is kept alive for future generations.

Potential new policy ideas suggested in the report include introducing a new lending model backed by the Government to help those without family support to raise a deposit, introducing more flexibility in lending affordability criteria, for example less restrictive stress rates for fixed term mortgages, and making better use of existing housing supply and encouraging greater circulation of homes by introducing a stamp duty incentive for downsizing.