5 ways accountants can help ‘generation rent’ get on the property ladder
Research by Legal and General has confirmed what many young people already know – that for them, buying their first home without financial help is almost impossible.
One in four buyers are expected to receive financial help from friends or family, and the average parental contribution for home buyers this year will be £18,000. In total, financial services firm L&G said 27% of home buyers would get assistance - up from 25% last year.
Many young people aspire to own their own home, live mortgage free, or have an asset they can leave for their children. But this goal is increasingly the privilege of those with wealth, or who were able to get onto the property ladder when housing was more affordable.
Lifetime of renting
Paula Higgins, chief executive of the Homeowners’ Alliance, said: “The danger of all this is the social inequality it will create between the haves – who are homeowners – and the have nots.”
A recent report from the Resolution Foundation suggested that as many as a third of young people will never get the chance to own their own homes and will rent all their lives.
This research comes fast on the news that the number of middle aged renters has doubled in the last ten years. The proportion of 35 to 54-year-olds who live as private tenants has grown dramatically since 2006.
Analysis from the Department for Work and Pensions predicts that rising UK house prices have left many people unable to afford their first home, or as “accidental renters” - often because of a relationship breakup, death or debt.
How to afford your first house
When you’re saving for your first property, or looking to get back on the property ladder, imagining the lump sum needed for your deposit can seem daunting – but it’s not impossible to get there. We spoke to our income protections experts at PG Mutual about what advice accountants can give to help potential buyers get on the property ladder.
1. Attack your debts
Time for a financial audit. Face the figures head on and come to terms with exactly what you owe. Whether small or large, attack your debt – especially where you’re racking up interest, such as credit cards. Make your debts be the first bills you take care of on pay day and set up automatic payments, so you know when you’ll be debt free.
2. Do more with your savings account
Maybe you already have a savings pot for your home owning goals. If not, then open a separate account so you have complete visibility on your progress. With the interest rate on regular saving accounts often being low, review your account at least once a year to check you’re getting the best rate of interest available.
Comparison websites are a good starting point for anyone trying to find a savings account tailored to your needs. Or consider speaking to an independent financial advisor and ask if there’s a better option for you outside of traditional banking.
3. Find out your deposit goal, make a plan
The average first-time buyer puts down a 20% deposit on their first home, which could mean finding a daunting £20,000 or more. But you might not need to save as much as you think.
When figuring out how much you’ll need to save, consider the following: what size type of property do you want, and how much are those selling for in your chosen area? Do you really need such a high deposit?
And do you have an appetite for starting smaller, moving outside the city limits if your desired area looks a tad pricey, or taking on a fixer upper?
The supply of 90% mortgages is also increasing and there are a variety of other ways to reduce your payments, such as checking if you are eligible for a first-time buyer programme.
4. Consider new home buyer schemes
Hopeful home owners with a small deposit could be eligible to use the Government’s Help to Buy scheme, a shared equity scheme aimed at helping both first-time buyers and home movers buy their new build home.
Available to first-time buyers and existing homeowners who want to buy a ‘new build’ house, under this scheme you can borrow 20% of the purchase price interest-free for the first five years if you have at least a 5% deposit. Various T&Cs apply and limits differ across the UK and you can find out more at Right to Buy.
5. When you do buy a home, consider your safety net
Getting on the property ladder is a great achievement. It’s important to have a financial safety net in place to provide you with peace of mind that your home wouldn’t be at risk should the worst happen.
Income protection cover may not be something you have considered before. An Income Protection Plus plan could ensure that should you be unable to work due to injury or illness, your mortgage payment could be covered as well as other monthly overheads while you recover until you can return to your career or until you reach age 65 (whichever comes first).
ICAS partner PG Mutual could cover as much as 70% of your income should you experience unexpected illness or injury.
An Income Protection Plus plan with PG Mutual helps you build for your future while protecting your present as their plan includes an investment element.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.