How to build a stronger mortgage market for under 35s

The difficulties young people experience in getting on the property ladder has been widely discussed. It’s clearly bad news for the country’s young people, but the hard time under 35s are having acquiring their first property has wider effects on the housing market and indeed on mortgage brokers, who simply have fewer deals on the table.

However, there is light at the end of the tunnel as several initiatives are providing under 35s with more options – and mortgage brokers are well placed to provide the advice that can help young people make the most of their options.


How under 35s are excluded from the housing market

We all know that it’s a matter of price, but it’s worth taking a look at just how worrying the statistics are to understand the implications for the mortgage market. The average income, purchase price multiple is now eight averaged1 across the UK. Country-wide, more than 75% of young adults2 need to save six months of their entire pre-tax salary to afford the deposit on a house.

Parents are jumping in to help, statistics show that over 60% of under 35s3 that manage to buy a property enjoyed assistance from their parents. However, not everyone has easy access to help from their parents.

Indeed, a quarter of UK parents in their 50s and 60s are sacrificing their own standard of living4 to help their children own their first home. Many parents are going as far as to postpone retirement4 or downsizing just to help children on to the housing ladder. These are big sacrifices for adults who are at the end of their working lives, and young people should be pointed in the direction of alternatives.

The options struggling under 35s have access to

For young people, being unable to get on the house ladder is a missed opportunity particularly in today’s environment of low interest rates. Rent payments can make deep inroads into outstanding mortgage capital, and quickly. Mortgage brokers cannot ignore the problem either: fewer buyers mean fewer deals involving both those buying their first homes, and for those stepping up. However, there are several opportunities mortgage brokers can steer frustrated customers towards:

A helping hand from the government

Not everyone is equally financially savvy, and the mix of government schemes that can help young people on to the housing ladder is confusing. Where a mortgage is completely off the table brokers can point prospective clients to a government scheme that could help them along the way:
  • Lifetime and Help to Buy ISA. Both savings accounts schemes allow young people to accelerate saving up for a deposit as the government tops up the amount saved up to a maximum amount as long as the savings are used for a home deposit. Where young buyers find the deposit hurdle too high, mortgage brokers can suggest a different savings account.
  • Help to buy loan. With income to loan ratios such a major hurdle, the government’s 20% loan towards a house (40% in London)5 can make a big difference. It reduces young buyer’s deposit requirement, and boosts loan eligibility. Where buyers are unaware of this scheme brokers may want to point buyers to qualifying properties.

Extended mortgage terms

Mortgages are increasingly available in far longer terms, as long as 40 years. Experienced mortgage brokers will know that extended repayment terms are no golden bullet, coming at a much higher long-term cost than the equivalent 25-year mortgage.
However under today’s difficult circumstances brokers can discuss the pros and cons with buyers and help clients decide whether saving up and waiting to buy is perhaps a better option given personal circumstances.


Support from parents

Earlier in this article we outlined how parental support comes at high expense for parents, but this need not necessarily be the case. Mortgage brokers should discuss the following two options with their clients as these could be a realistic aid in getting a mortgage:
  • Equity release. Thanks to steep rises in property prices many parents sit on a large source of wealth in the shape of their house. Where parents don’t have funds at the ready, equity release can provide a way to utilise some of this property wealth towards a deposit to help children on to the property ladder. Equity release can help parents maintain their standard of living and does not involve sacrificing retirement plans.
  • Guarantor loans. Since the credit crunch 100% mortgages have not re-appeared, but banks are willing to lend to youngsters if a guarantor steps in. Though parents are putting their money on the line, it is another way of helping young people buy a home when it would otherwise be out of reach.

Shared ownership as a stepping stone

Particularly in areas with extremely high property prices such as London, shared ownership can be a realistic, viable route to home ownership. First-time buyers can find shared ownership schemes confounding, but mortgage brokers must shine light on the subject and highlight the potential pitfalls too. Again, armed with an understanding of the shared ownership market, potential borrowers will be more likely to submit that mortgage application.

How mortgage brokers can help steer young people on to the housing ladder

Government action and indeed market dynamics are slowly creating opportunities for young people to buy their first homes. However, the underlying schemes can be complex and seemingly obtuse. Mortgage brokers can play a role in growing the mortgage market by ensuring all the options are on the table for prospective buyers.
To a mortgage broker it will rapidly become obvious when a prospective homeowner is locked out of the market.

During the initial consultation session brokers must outline alternative options. Mortgage brokers can learn more about the importance of equity release and other topics on the Key Partnerships blog, which you can sign up to here.

Unless a prolonged period of stagnant house prices comes along, or indeed a dip in house prices occur, under 35s will continue to find buying a first home problematic. As a mortgage broker, have you found that your young clients are increasingly frustrated about their options? What do you think your role can be in helping youngster buy a home? Let us know!

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  1. Independent – UK houses now cost almost eight times average earning, says ONS -
  2. Institute for Fiscal Studies – Even the cheapest local homes are out of reach for at least 40% of young adults -
  3. The Telegraph - Vital help for the bank of mum and dad -
  4. The Independent - Parents ‘sacrificing’ living standards to support children at ‘alarming’ levels -
  5. Help to buy = Equity loans -