Millennial Corona-nomics: COVID effects on the UK Housing Market
Getting on the property ladder is notoriously painful, especially for young people, but the pandemic has made it worse. COVID-19 has affected many aspects of our lives, but let’s have a look at how the housing market is handling the pandemic.
Now, more than ever, our homes matter. Lockdown and the necessity of working from home has forced us all to spend more time indoors, making some appreciate the best features (*cough* that epic flatscreen *cough*) and others notice what might be missing. Although DIY has become all the rage, sadly not all things can be fixed with a colourful Pinterest board and a trip to B&Q. Some may wish to upsize to make room for a home office or perhaps a garden- the point is, the pandemic has forced us to focus on what matters in our homes. And that might have encouraged you to look for a change.
House Price Crash, What’s happened to house prices
According to the UK Land Registry, house prices in the UK have risen 2.5% over the last year. The property market was put on pause during the March lockdown but recovered partly due to the governments’ stamp duty holiday.
Stamp Duty Holiday
From the 8th July 2020 until the 31st March 2021, the government introduced a stamp duty holiday for properties worth less than £500,000. On average, that should save a household £4,500.
How does a mortgage work?
Okay, so a quick crash course on mortgages for those who don’t know. A mortgage is a type of loan taken out to buy a property, which is paid back, with interest, in instalments over a number of years (usually around 25 years). So instead of paying tens or hundreds of thousands of pounds upfront for a house, you’ll pay a deposit worth a certain percentage of the property’s value.
Given the financial instability this pandemic has caused to many, lenders have become more cautious- which isn’t great for most first time buyers. Since the start of the pandemic, the number of mortgages available has more than halved from 5,222 to 2,338, but the greatest damage has come to the range of small deposits. Mortgages with 5% deposits have all but disappeared and even 10% deposit mortgages have massively reduced to 5% of their pre-March numbers.
What this means for young people and first time buyers
As aforementioned, deposits have been increasing - or rather, the number of mortgages with small deposits has become rarer. This makes it far harder for first time buyers to get on the property ladder, as 5% of deposits become 10% and even 15%. On average, a first-time buyer will have to save an additional £12,000 as deposits have grown.
Many millennials are waiting longer to buy their first property, and not solely because of the price (though, let’s be honest, that’s definitely got a lot to do with it…). As millennials had a rough entry into the workforce, as well as being saddled with a load of student debt (an average of almost $30,000 in the US), many are taking longer to hit the traditional milestones of getting married, buying a house and having children. In fact, when compared to Baby Boomers at the same stage of their lives, millennials are 15% less likely to be living with a family of their own, according to the Pew Research Center.
Even so, first time buyers are having to wait longer and longer to save enough money given this increase, coupled with the growing financial uncertainty of the pandemic. As explored in our previous instalment, millennials have been especially hard hit by the coronavirus, check it out here.
Despite these challenges, almost two-thirds of first-time buyers have said that buying a home is more important to them now than it was before lockdown!
Let’s be honest, those are some scary numbers. But it’s not all bad- check out the next instalment to see what policies are out there to help first time buyers.
In uncertain times it’s more important than ever to get your finances under control. If you’re looking for better ways to monitor your bills and spending and take control of your budgeting check out the free Nova app.