Flying the nest, starting a career and beginning to fend for oneself financially is usually an exciting chapter in life for many young adults. However, over the past year, the worsening economic state of the UK has destroyed many young people’s sense of hope and has replaced it with feelings of anxiety, frustration and anger.
With rising inflation, the cost-of-living crisis has deepened as we’ve seen the price of basic necessities such as food, fuel and energy bills skyrocket. What’s more, house prices have soared, making the prospect of homeownership seem near impossible for those looking to get on the property ladder. In fact, in June this year, Rightmove revealed that the average asking price for a home in 2022 is now more than £50,000 higher than before the pandemic.
For first-time buyers, the latest double-digit yearly growth in house prices presents a huge barrier to the property market. As prices remain high, income stays low and mortgage rates increase, saving for a deposit isn’t just difficult, it’s not even on the cards for most. This is an entire generation of people that will be stuck renting for their entire life, while others comfortably sleep on their buy-to-let portfolios. The fundamental solution is building more affordable housing at a lower cost - yes, other countries have successfully done that - but it's also providing better ways to help finance these purchases. Alternative financing options, originally designed to help first time buyers make homeownership a reality, are now a desperate necessity.
The Government’s Help to Buy scheme was largely seen as having been successful in providing a helping hand to those looking to get on the property ladder. However, with the scheme set to end in October and no alternative support outlined by the Government to address the issues caused by the cost-of-living crisis, first-time buyers should look to explore other lending options that can help them to increase their deposit and access better rates by lowering their loan to value ratio. To help buyers now, we need to stop hiding behind bureaucracy and politics, roll up our sleeves and find solutions that will provide real generational help for the future, not just for today.
Renting and the ‘Bank of Mum and Dad’
While purchasing has long been difficult, renting is also quickly becoming yet another unaffordable option for young people. Recent data reveals that four in 10 people under the age of 30 are now spending more than 30% of their pay on rent. This does not take into consideration the cost-of-living crisis and increased energy costs. How is anyone supposed to save up for a deposit in this economic environment then, and what other methods do people use to help actually purchase a home?
It’s not just young people who are keen to get out of their family homes. According to analysis by Savills, parents in the UK will, combined, have lent a whopping £8.4bn to help their children buy homes this year alone. In fact, the so-called ‘Bank of Mum and Dad’ will lend a total of £25bn to their children over the next three years. However, this option undoubtedly defeats the idea of becoming financially independent, not to mention that there are many young people with parents and caregivers who aren’t able to offer this level of financial support.
Equity loans and fintech solutions
Alternative finance is now essential for those who want to buy, without obliterating all of their savings that will be desperately needed to combat the affordability crisis that lies ahead. New, innovative Fintech companies can provide first-time buyers with equity loans that cover the cost of deposits.
What’s more, these companies co-own the risk of the property investment, so it is in both their and the customer's interest that the property value climbs over time. The best of these companies will be using technology to identify which neighbourhoods to buy in across the country, where homes are most undervalued today and may have a higher chance at price growth.
It is important that those looking to buy a home look into the available options out there, rather than despair in the harsh economic climate. With the right financing tools, provided by innovative Fintech companies addressing the market need today, homeowners can still make their dream of home ownership a reality.
Vadim Toader, Co-Founder and CEO, Proportunity