The challenges faced by first-time homebuyers are rooted in rising property prices that have consistently outpaced income growth over the decades. If you were born in the UK in the mid-1990s, your chances of owning a home before turning 30 stand at about 25%. This is a stark contrast to those in their twenties in the 1990s, who had nearly double the likelihood of getting on the housing ladder.
The Growing Housing Gap
Several factors have contributed to the widening disparity in homeownership. The lack of adequate housebuilding to meet demand remains a central issue. Although the government in England estimated the need for 300,000 additional homes annually to cope with population changes and modern living preferences, only 208,000 homes were built last year. England has not met its housebuilding targets for over 30 years, leaving a growing shortfall.
Construction costs have soared due to inflation, affecting everything from land and labour costs to raw materials like timber and steel. This cost inflation accelerated during the Covid-19 pandemic, driven further by disruptions like the war in Ukraine, which increased energy prices by 15% in just one year. Brexit has also compounded the issue by reducing the pool of skilled workers in construction.
This inflation means that a house costing £150,000 to build in 2015 could now cost £230,000, with projections suggesting costs might rise another 15% in five years. Planning regulations, intended to protect environments and ensure safety, also add to construction costs, making many builders hesitant to commit.
Financial Strains on Buyers
Saving for a house deposit, necessary amid climbing property prices, presents significant challenges. Deposits often amount to tens of thousands of pounds, with regional variations adding further complexity. Many potential buyers also face high rental payments, which can absorb a substantial portion of their income, forcing them to delay saving. As a result, an increasing number of young adults opt to reside with parents to reduce living expenses and increase savings.
Signs of Improvement?
There are signals of potential relief on the horizon, as wage growth has begun outpacing house price inflation, making homes slightly more affordable. Some lenders have eased deposit requirements and offer expanded loans with longer repayment periods, easing the burden on first-time buyers. Mortgage payments, as a ratio to wages, are approaching their long-term averages given the slower rise in home prices.
Ultimately, to achieve the level of access to homeownership experienced by prior generations, significant construction of new homes is imperative. Sir Keir Starmer’s government has announced plans to simplify the often cumbersome planning processes, including controversial measures to allow building on the green belt. However, incentivising builders and securing their commitment is crucial for any long-term headway, and any governmental strategy will require years to manifest results fully.
Reporting based on coverage first published by bbc.co.uk.