Someone recently asked me if growing up as a Millennial was depressing because of the financial hardships we have to endure. Well, when growing up, the internet was dial-up, and we had no colour television until my teens, but other than that, it wasn’t too bad. After all, two generations ago, my grandparents grew up in a World War. As did the generation before that. All with no public health system, internet, or free education. In fact, all in all, we Millennials have it pretty swimmingly. So why do we feel so hard done by?
The property market within Britain is like very few other places in the world. Given the UK’s population density, every square foot is in high demand, and as the population continues to rise, so do prices. Although British Millennials seem to want nothing more than an apartment to call their own, home owning is at its lowest since 1987, with the number of renters almost doubling in ten years, from 2.2 million in 2003 to 3.9 million in 2013. And to add uncertainty to an already huge number of Millennials at the hands of landlords, these figures come at a time when renting from private landlords now outweighs housing association and council renters for the first time. This means that fewer rent controls are in place, with the result being that the baby-boomers have spent the last two decades cashing in on the buy-to-let market whilst tending to their own bank balances at the expense of the eternally-renting generation.
Of course, whilst Millennials’ troubles might seem cataclysmic in our eyes, we should remember that we have the power to sway the country’s figures given our sheer numbers, not to mention an unprecedented amount of wealth about to be transferred to us within the next two decades. We need to focus on the positives of living in this time, rather than the negatives. Of course, the negatives aren’t hard to find. According to Country Life’s “Who Owns Britain?” in 2010, 0.6% of the population owns over 50% of rural land in Britain, but this has been the case for centuries, and convincing ourselves that we are the only ones on the receiving end of such hardship only serves to stop all sympathy and makes us seem ungrateful whingers.
The main problem is the Millennial lifestyle. We want everything, and we want it now. Whilst home owning was more common for the baby boomer generation, they also bought a house and stuck with it. These days, we want a house purely for the cash value to re-sell in a few years, as well as the social status of showing off that we’ve ‘made it’ by our 30s. If we truly cared about financial security, we wouldn’t have store credit card debts coming out of our ears or feel pressured to get a new phone every six months. As I have argued previously, everything is in our reach, and getting on the property ladder is possible; but it takes a lot of work. Hard work. If you are willing to approach the challenge with a positive mindset, there are increasing possibilities.
How to get on the ladder
The government’s ‘Help to Buy’ scheme has had a successful run in the past two years. Intended for those who can’t stump up the full 25% deposit, the government loans 20% of the house value, interest-free for five years, so that you only need to save 5% to get a decent mortgage rate of 75% loan-to-value. Given that that average UK home is now worth £284,000, that means that a household (traditionally a couple or individual, but increasingly two friends who club together) require a joint income of just under £41,000 to buy somewhere, along with their £14,500 joint deposit. All of a sudden, owning a home isn’t quite so far out of reach. Unless you live in London, of course. Living in London has the draw of increased employment prospects, often with a London salary weighting allowance, but the increase in salary doesn’t always match up to the increase in property prices.
The average London home has now exceeded £520,000, so even with Help to Buy deposits out the way, a household would need a minimum income £90,000 to get a mortgage, which, given the average UK salary is nearer £26,000, would mean most couples fall short by almost £40,000. However, having bowed to pressure in the latest budget, Osborne has separated the Help to Buy scheme into two different regions – London, and the rest of the UK. This means that Londoners finally have a chance to access the Holy Grail of savings – buying a house. Having increased the interest-free loan to 40% rather than 20%, borrowers only need to find a mortgage provider willing to lend them 55%. The outlook is much rosier.
But should we all rejoice in a spontaneous gesture of thanks to the government? Perhaps not. One of the biggest criticisms of the Help to Buy Scheme has been that it has helped everyone except the hard-done by Millennials, and some commentators have even suggested that it has made buying a home harder due to the increased competition. With many first-time buyers being virtually fully funded by the Bank of Mum and Dad, the government – ergo the taxpayers’ – interest-free loans have not ended up helping low-income Millennials, but rather have just been used as a way for wealthy Gen X parents to offload some of their savings to their children. With a ceiling of £600,000-purchases available under the scheme, in all likelihood, it is those who already boast a financial head-start in life that are making the most of the scheme. Their ability to snap up bargains chain-free is only serving to increase competition in the market whilst low-income couples who have slowly moved up the property ladder over the years are being edged out of the market once they reach the half a million value mark.
The middle classes have been rushing to help their children out of the endless renting spiral by giving them huge deposits which have enabled them to buy 2-3 bed London homes, whilst dodging any risk of inheritance tax on the way, all on the government’s interest-free loans. This has meant that London homes, as well we those in popular university towns like up and coming Newcastle or trendy Bristol, are now in demand as soon as anything comes on the market. In recent years, bidding wars have been everywhere, yet how many of the Millennials are out-bidding each other on £600,000 two beds with all their own money? It leaves those from low-income families well and truly out of the homeowners club: the result of a well-intentioned scheme.
As written in last month’s Master Investor Magazine, the new Lifetime ISA is a great alternative, and it holds no disadvantages to those without a trust fund behind them. If you can’t wait until 2017 to get started, there is also a government Help to Buy ISA. It allows you to save up to £200 a month in the scheme so that when you are ready to buy a home, the government will contribute an extra 25% (up to a maximum bonus of £3,000). On top of the 4% interest rates available, one of its most attractive aspects is that it is of course, like all ISAs, tax-free. Where else could you put in £2,400 during a year, and get an additional £600 from the government for doing nothing? Within five years you’ll have an extra £3,000 from nowhere. All it takes is a little consistent saving.
Although we Millennials like to think that properties should fall into our lap, the key is saving and restraint. The concept of getting onto the ladder without any form of savings is unheard of for any past generation, so why should we be any different? There are practical schemes out there to help, and although a few evenings out here and there might need to be sacrificed, the government is under pressure to help Millennials, and through taking advantage of these, the potential of being a home owner by 35 is in everyone’s reach.