It’s time to rethink why we buy property

31 May 2018

Millennials need to decide whether getting on to the property ladder is truly worth it. Housing and the property market has always been a hot topic for discussion and it’s become even more prominent of late due to the very high prices that homes in some areas have risen to.

Despite this, think tank Resolution Foundation has found that some 65% of young people still aspire to buy their own home.

But should millennials even bother buying a first home when the barrier to entry is so high?

I imagine one of the key reasons why young people desire to become homeowners is the stability it creates to start a family. Not being beholden to a landlord gives young couples significant reassurance that they won’t one day be turfed out if the owner decides to sell up.

However, property ownership is in decline. According to the think tank, the number of families with children living in the private rental sector has increased from 600,000 in the early 2000s to 1.8 million today.

This is very likely to come down to an issue of cost rather than choice. According to research from comparison website MoneySuperMarket, a couple expecting their first baby should be prepared for their costs to rise by as much as £14,000 a year, which could make saving for a house deposit at the same time near-impossible.

Another likely reason for desiring homeownership is because many millennials will tell you they’ve had a mantra drilled into them by their baby boomer parents (who have done well out of home ownership) that property is always a good investment. “If the economy goes to hell in a handcart, you’ve still got the bricks and mortar!” I hear your parents cry. Well, imagine the local economy collapses in the town you live in, but continues apace 200 miles away. Suddenly you’re stuck, potentially in negative equity, with an illiquid asset at the exact moment you need to move towns to get a job.

And that’s assuming you manage to get on to the market in the first place, given the barrier to entry is appallingly high. The pain of scrimping and saving for a deposit and the brutal mortgage affordability tests that lenders now put people through have made it immensely difficult to get started. And don’t forget the stamp duty land tax imposed if you’re a first-time buyer purchasing a property over £500,000, and only the first £300,000 will be exempt from this tax where a home costs less than £500,000.

“Buying a home is an impossible equation to solve ”

Plus, while the government lays out all manner of schemes to help youngsters get on the ladder – such as Help to Buy and Lifetime Isas (Lisas) – these simply stoke demand, do nothing to improve supply and are likely to further inflate prices and cut more entrants out of the market.

In short, you’ve got a concoction that makes me wonder if buying a property is really worth it.

There is no doubt it has been a boon for our parents’ generation. But now millennials are stuck in a Catch-22 situation where the deposits they’re building rot away in low-interest bank accounts, their options are severely limited according to where the opportunities to live and work are most prevalent, and we are unlikely to ever see a return to the days of 100% mortgage lending.

It is simply becoming an impossible equation to solve. It’s time the government helped renting become a more stable option for families and young people alike, and we could all think carefully whether our money could be better invested in other ways than buying a home.

As a young single person living in central London, owning my own property is well beyond my means. Owning in my home town while I rent in London is also unfeasible, because no lender will ever consider me for a buy-to-let loan, and right now I need to be in the capital for work.

Instead, I’ve decided to make my money grow using high-quality investment funds. I hope to be able to make small regular investments that will allow me to access the property market in 10 to 15 years’ time.

Although do note that if you’re planning to buy a home in the immediate future, then it’s best to save in cash. Investing should only be for the long term, with the opportunity for greater returns over time. The value of your investments can go down as well as up.

Millenials infographic