When is the best time to get on the property ladder by buying your first home? As reported earlier, there has been an uptick in the mortgage market by 0.7%, however, that upturn is not spread around the generations. Those in their 20s and 30s continue to be at their lowest levels ever in terms of homeownership and their highest ever levels for both renting and living with their parents. However, regardless of the difficult conditions, getting on the property ladder in your 20s is still the best option for living independently.
Why the Property Market is Stacked Against the Young
There are a myriad reasons why the homebuying and mortgage markets are stacked against younger professionals. These related primarily to changes in the market after the financial collapse of 2007 and the subsequent foreclosure crisis, changes in investment strategies by the better off, and population growth outstripping the construction of new properties. Each one has put up prices, increased competition, and made rules more difficult. These primarily affect younger people with less savings and fewer assets.
Mortgage Lending: The terms and conditions, lending rates, deposit percentages, and income requirements of prospecting homebuyers changed significantly after the financial and subprime crises a decade ago. However, while the biggest victims were hard working Americans who lost their homes, the next biggest were those who wanted to buy their first property. Suddenly they were faced with larger deposits, higher monthly repayments and other rules which made it more difficult to get in through the door.
Buy to Rent Portfolios: Since the invention of property, be it feudalism or capitalism, living in a place owned by someone else has come with a cost. However, the downturn in home buying has led to a rise in those wanting to rent. This has pushed prices up, which has only been compounded by retirees and investment portfolios buying up properties and converting them into often cramped high cost rental properties. In paying high rents, professionals in their 20s and 30s are wasting $80,000 a decade in rents, which could have put down deposits on two properties at least. In many places and countries this is further compounded by skyhigh letting agent fees just to apply to live somewhere.
Population Outstripping Construction: Most markets work via supply and demand whereby something which is in ready supply costs less than something which is harder to get hold of. It is in the interests of many stakeholders, including homeowners tapping the equity in their properties, to limit construction in order to force up average property prices. The same goes for rents. This is pulling up the ladder once you’re in the attic.
Each element has severely hit professionals in their 20s but combined it has made life even more difficult. As noted above, this has led to people renting in order to move away from home, but the rental market makes it next to impossible to save for the higher deposits required for a house. On a macro level, it is obvious that governments and companies should build more homes, make it harder to snap up all the properties to rent out at high prices, and develop mechanisms for making buying a first home easier. For professionals in their 20s, they need to avoid falling into the rental trap, and work hard to find innovative ways to get onto the property ladder.