The Brief: The Resolution Foundation announced that 5 million first-time home buyers will be affected by the recent 3% hike in interest rates by the Bank of England (BoE). According to their analysis, young homeowners within the 25-34 age range will have additional mortgage costs worth £3,700 a year by the end of 2026. This is equivalent to 8% of their household income.
Why It Matters: While the high cost of borrowing means that young first-time home buyers will have to borrow an average of 3.5 times their income, according to the report, the drop in home prices will shorten their time to save for a 10% deposit by two years.
Finanze® Foresights: The fall in home prices does not necessarily guarantee that young first-time home buyers can afford the required deposit to get a better mortgage. Although the number of recent first-time buyers has increased in 2021 by 12% year over year, according to the English Housing Survey, housing affordability still remains an issue for many younger buyers, especially now that the cost of living continues to spiral. But a poll this year by researchers from King’s College London found out that there’s another reason that affects home ownership apart economy factors such as lower wage growth and stricter borrowing rules: too much spending on non-discretionary items and services. The survey revealed that among the factors that young adults are having difficulty today, buying a home was seen among all age groups as the most challenging by millennials (70%) and Gen Z (65%) cohorts. And part of the reason is that 48% believe young adults spend way too much of their earnings on takeaways, mobile phones, overseas vacations, and subscription-based streaming services. This means that it becomes harder for them to compete against other buyers in a market that highly favours all-cash offers. For home ownership to be possible, however, a change in spending habits along with eligibility for first-time buying programs by the government and higher savings can put their feet on the property ladder.
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