Finance News

Cheapest homes remain out of reach for 40% of young adults

Rozi Jones
8th October 2018
barrier warn time delay
"Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one."

Even the cheapest local homes are out of reach for at least 40% of young adults, according to data from the IFS.

Its data shows that with a 10% deposit, only around 60% of 25 to 34 year-olds would have been able to borrow enough to buy even one of the cheapest homes in their area in 2016.

Barriers to homeownership are particularly high in London where – even with a 10% deposit – only one-in-three young adults could now borrow enough to purchase one of the cheapest homes.

This is in contrast to 1996 when over 90% of young adults would have been able to purchase a house in their area if they borrowed 4.5 times their salary, even in London.

The data shows that after adjusting for inflation, average house prices in England have risen by 173% since 1997, compared with increases in young adults’ real incomes of only 19%. As a result, the share of 25 to 34 year-olds who own their own home fell from 55% to 35% between 1997 and 2017.

Rising property prices relative to incomes have also made it increasingly hard for young adults to raise a deposit.

In 2016, around half of young adults would have needed to save more than six months of their post-tax income to raise a 10% deposit on one of the cheapest properties in their area, compared with just one-in-ten in 1996.

To buy an average-priced home in their area, more than three-quarters of young adults would need a deposit worth six months’ income or more, up from one-third in 1996.

Polly Simpson, a research economist at IFS, said: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit. Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation too.”

Jonathan Cribb, senior research economist at IFS, commented: “The most economically productive and wealthiest parts of England – London and the South East – are those with the most restrictive planning constraints. It is unsurprising that these areas have also experienced the biggest house price increases. Increasing the responsiveness of construction to house prices is a necessary part of the solution, particularly in these areas. Unlike other policy alternatives, this would both help reduce house prices, boost homeownership and reduce rents, benefiting renters, some of whom will never own.”

Related articles
More from Finance News