Only 61% of young people on average earnings could buy a property with a 10% deposit, down from 93% in 1996.

Four out of 10 young people would now not be able to afford even the cheapest property in their area with a 10% deposit.

In 1996, 93% of people aged between 25 to 34 would have been able to purchase a home in England with a 10% deposit if they borrowed 4.5 times their income. 

But today the figure has fallen to just 61% as a result of house prices increasing significantly faster than wages, according to the Institute for Fiscal Studies. 

Slow income growth also means three-quarters of first-time buyers would now have to save for more than six months in order to put together a 10% deposit, compared with just 33% 20 years ago. 

The research came amid reports that the Government is considering offering a tax break to landlords who sell their properties to long-term tenants. 

Why is this happening?

The IFS said the average property price in England had soared by 173% since 1997, after adjusting for inflation, and by 253% in London.

By contrast, real incomes for people aged between 25 and 34 have edged ahead by just 19% during the same period. 

The situation makes it significantly more difficult for first-time buyers to afford a home, particularly when mortgage lenders have tightened their affordability criteria. 

Meanwhile, the cost of renting has increased by 38% in real terms - double the rate at which young people’s pay has risen. 

Who does it affect?

Unsurprisingly, the lack of affordability is particularly acute in London and southern regions, where house prices are highest. 

Only 45% of young people on average local incomes could now afford to buy the cheapest property in their area with a 10% deposit in London, the south east and east, down from 92% in 1996. 

There are also regional differences in the amount of time it takes young people to save a 10% deposit. 

The study found that 95% of Londoners would take longer than six months to save a 10% down payment, falling only slightly to 91% of people in the south east, 86% in the east and 84% in the south west. 

By contrast only 50% to 60% of young people would take longer than six months to save a deposit in the East Midlands and northern regions of England. 

Two-bed flat for sale in Hemel Hempstead for £80,000

What’s the background?

The IFS said rising house prices had benefitted older generations at the expense of younger ones, increasing intergenerational inequalities. 

It said planning restrictions should be eased to make it easier for developers to build more homes in response to rising demand, warning that without greater ‘elasticity’ in supply, government policies to help young people get on to the housing ladder would contribute to pushing house prices up. 

Meanwhile, the Chancellor Philip Hammond is said to be considering a proposal by right-wing thinktank Onward, under which buy-to-let investors would be eligible for 100% capital gains tax relief if they sold a property to someone who has rented it for at least three years. 

Capital gains tax is usually charged at 28% on house price appreciation when an investment property is sold. 

Onward is proposing that instead of handing over this money to the Government, landlords could keep half of it, while half would go to their tenants, who could put it towards their deposit. 

Top 3 takeaways

  • Only 61% of young people would now be able to afford to buy the cheapest property in their area with a 10% deposit.

  • Three-quarters of first-time buyers would now have to save for more than six months in order to put together a 10% deposit.

  • The Institute for Fiscal Studies said the best way to resolve the situation was to ease planning restrictions to enable developers to build more homes in response to rising demand. 

You might also be interested in... 

* DISQUS *
comments powered by Disqus