As a result, Generation Y or Millennials (those born between the mid 1970s and mid 1990s) are widely predicted to become the first ever generation to do worse than their parents and grandparents financially.
Battling increasing odds
While Gen Y has struggled to develop careers and increase their earnings, the house price to income ratio has continued to escalate, creating challenges for today’s first time buyers.
One of the biggest obstacles for Millennials has been the saving needed for a deposit. While the Help to Buy schemes have been a help, it is still the case that with the continuing rise in house prices many are unable to save sufficient funds.
High rents are also a contributory factor. Escalating rents can compound the issue, making it less likely for a potential buyer to accumulate sufficient savings to get a foot on the property ladder. This is now reflected in tenants’ expectations of buying a home. Due to the difficulty in saving for a deposit, the latest LSL First Time Buyer Opinion Barometer reported that only 11% of tenants feel they will be able to get onto the ladder, down from 13.4% this time last year, while 13.1% believe that they will probably never be able to own their own home, up from 11.0% twelve months ago.
Getting your priorities right
However, while I do have sympathy for people trying to get onto the housing ladder, many of the difficulties faced by the Millennials are also down to lifestyle choices. There is now a level and type of expenditure that many Millennials now think of as ‘essential’ which arguably in previous generations would have been shelved until after they had bought a house.
Many people quote the baby boomer generation as having it easy but buying a house for this generation usually required saving with your building society usually for at least two years before you could even have a conversation about a mortgage. During that time you usually needed to have paid in money to your savings account every month to prove you could make regular payments. When you did finally move into your house, it is likely that it was uncarpeted, or if you did have enough money for carpets your table or sofa were likely to be borrowed or home made until you had saved up enough to buy ‘proper’ ones. Mention that to a Millenial and it is likely that they would look at you as if you were mad.
Getting a balance
Of course this does not account for everyone wanting to get on the housing ladder. There are those who work hard and have good jobs and who still struggle to buy a house. There really needs to be a balance so that people who are credit-worthy do have a way of saving and buying their first home. With options such as the Help to Buy schemes and the government’s new incentive scheme for those saving for a deposit it does become just a little bit more possible and this is where a good mortgage broker can be worth their weight in gold, guiding a potential first time buyer through the process and providing them with the options that they are just not likely to get from a bank.
Case study – the need for mortgage brokers
Ben and Clare are both in their early 20s. Ben is an IT consultant while Clare works hard as a customer services manager. They had rented for two years while saving up a £30,000 deposit for their first house. They had heard of the government schemes and went into their local building society to get advice on these and start exploring the process of getting a mortgage.
In the building society they were shocked to find out that they couldn’t even get an interview with the society’s mortgage adviser for three weeks; alternatively they were offered a Skype type call with an adviser in another branch the next day. At the point they were told about the Skype call they thought the society was joking, but soon realised they were completely serious. They booked it in but felt incredibly uncomfortable about the thought of revealing their personal financial details to someone they didn’t know across a computer.
Fortunately they were put in touch with a First Complete mortgage broker. They had a face-to-face meeting arranged within two days. They were not looking for a market leading rate, they were more interested in understanding the process and finding out what their options were.
The broker spent some time understanding their circumstances and told them that they didn’t need one of the government schemes as they had saved a large enough deposit for the sort of house they wanted. What is more they were suitable for a mortgage product exclusive to the network that was one of the most competitive rates on the market at just 2.55%
While people of all ages, not just Millennials or first time buyers, do need to be realistic about what they can afford and how much they can save, the case study does highlight the fact that some people may well struggle still more if they only go into a high street branch and do not also talk to a mortgage broker.
