The Must-Know Tech, Programmes and Products To Get Millennials Onto The Property Ladder
Against the backdrop of the statistic that only one in three will be able to afford their own home, the press routinely refers to millennials as ‘Generation Rent’. The gloomy statistic quoted comes from a report by think tank Resolution Foundation on what future UK governments can expect when it comes to the future housing benefit bill that will have to be footed for the country’s pensioners.
While the exact figure forecast may be open to debate and has to be taken within the context of a call to action for Britain’s ‘housing crisis’ to be meaningfully tackled, the reality is that it is difficult for millennials whose income falls within even the upper end of ‘normal’ salary scales to raise deposit requirements to qualify for a mortgage on their own home. In the South East, first time home buyers striving to get themselves onto that first rung of the property ladder reportedly now need to be able to come up with an eye-watering deposit of £52,000.
Even in the cheapest region of the UK, Barrow-in-Furness in west Lancashire, the average deposit for first time buyers is over £13,000. In Camden, London, it rises to as high as just under £175,000 according to data from Halifax. Higher property prices in Camden are compounded by the fact that the average deposit required of first time buyers is 28%, compared to just 12% in Barrow-in-Furness.
But enough of the despair. Plenty of millennials do still get themselves onto the property ladder and far from all of them are in the top percentile when it comes to earnings. It also has to be remembered that averages don’t tell the whole story. You don’t need to be a YouTube vlogging sensation or a footballer to stand a chance of becoming the owner of your, albeit mortgaged, own home even if you aren’t fortunate enough to benefit from parental assistance.
Strong budgeting and financial management is certainly likely to be necessary but there are also various tools millennials who want to buy their first home can make use of for a helping hand. These range from digital technology to fintech, government schemes for first-time buyers and even property developers specifically targeting millennial buyers with specially-tailored new property formats. So what are the ‘must-knows’ across those categories for millennials with the ambition to get themselves onto that first rung on the property ladder?
Government Assistance Schemes for First Time Home Buyers
The Help to Buy scheme is the best known and most widely utilised of the government’s schemes designed to give first time buyers, most of whom will fall into the ‘millennials’ demographic, a leg up towards buying their first home. Yesterday’s Autumn Budget 2018 announcement included the news that Help to Buy is to be extended from what was its previous 2021 cut-off point, to 2023.
Help to Buy is designed to alleviate the millennial’s burden of being able to cobble together a deposit that can easily amount to over half an annual salary, even outside of the environment of the nose-bleed property prices of London and the South East. It is exclusive to the acquisition of ‘new build’ properties but means buyers only need to save at least 5% of the sales price of a property.
The rest is covered by an interest free (for the first five years) loan of up to 20% of the purchase price of the property. This brings the deposit to at least 25%, presuming the minimum 5% personal contribution and maximum Help to Buy, loan amount, which also gives first-time buyers access to better mortgage deals, bringing down monthly repayments. Of course, the 20% loan value still needs to be repaid over 5 years, or extended with the addition of an interest rate, but does make that first step much more accessible. After 5 years of paying down the actual mortgage, and the property hopefully gaining in value, it should also be possible to re-mortgage on more favourable terms or even upgrade to that second property ladder rung.
The Shared Ownership scheme is another helpful government programme and works for first time buyers who are even further away from being able to afford the deposit and mortgage payments involved in acquiring their first home than those who Help to Buy would suit.
To be eligible your combined household income has to be under £80,000 (or £90,000 in London). Essentially, you buy between 25% and 75% of a property and require a mortgage, and deposit, relevant to that cost. So if the property you want to buy has a market price of £200,000, you could acquire half of it, costing £100,000. The deposit would then likely by 10%-20% of that £100,000. The rest of the property is owned by the council or housing association participating in the scheme, which pays the remainder of the purchase price to the developer. The scheme only includes, usually new-build, properties offered by a participating home builder, which is a limitation interested parties should be aware of. The part-owner/occupier then pays a ‘reduced rent’ which is usually significantly less than what the market rate rent would be, for use of the share of the property owned by the Shared Ownership partner investor. The buyer has the right to acquire more or the entire remainder of the share of the property they don’t already own at a later date when they can afford to do so.
The Shared Ownership scheme is available across England but other regions such as Northern Ireland, Scotland have approximate equivalents. Details on these, as well as other more specialist government schemes to assist property buyers, can be found on the government’s MoneyAdviceService website.
Millennials can also make use of the Lifetime ISA to help save up for the deposit on a first property. The LISA, contributions into which are capped at £4000 annually and form part of the larger £20,000 general ISA allowance, is open only to the under-40s. It benefits from an additional 25% government top-up to contributions, which regular ISA contributions do not, and is intended to be used towards either the deposit on a first property or retirement. If £4000 is paid into a LISA, this is topped up to £5000 by the 25% state contribution. Like regular ISAs, LISA contributions can be either held in cash or invested in shares, funds and other select investment vehicles.
Specialist Property Formats Aimed at Millennial First-Time Buyers
Property developers are also now adapting their products to an environment in which millennials are struggling to get onto the property ladder. One such example is London-based Pocket Living. The developer works with local London councils to build housing projects especially designed to be affordable to ‘middle earners’ making around the £40,000-£50,000 per annum. While that is by no means a low salary within the national context, in London it still makes it extremely hard to get onto the property ladder.
Pocket Living claims all of its properties are at least 20% cheaper than equivalent options in the areas surrounding its developments. Buyers have to live and work locally to be eligible to buy in one of its developments, due to the fact that its properties are classified as ‘affordable housing’. That means the company gets preferential treatment around securing planning permission. The lower prices are also achieved by properties being smaller than average, with architecture and natural lighting especially designed to make the most of compact space. One drawback is that buyers of Pocket Living properties are obliged to subsequently sell the property at the same ‘20% discount’ to comparable properties in the same locale.
Other developers in London, and in other more expensive property zones around the UK, are now beginning to follow suit and build especially compact properties targeting the first time buyer millennial demographic.
Digital Budgeting and Micro Investing Apps and Platforms
In recent years a number of millennial-targeted apps and other digital fintech tools designed to improve money management and saving and investment habits have also launched. While there is no denying that the cost of making that first step onto the property ladder has increased in recent years, there is also the contributing factor of far more consumer temptations than previous generations were faced with eating up millennials’ income.
Millennials’ parents didn’t have £500+ smartphones, budget airlines making European breaks an enticing, affordable, Bank Holiday weekend option to contend with. Throw avocado and poached egg brunches at £10 a pop and £3.50 coffees on the way to work into the mix and it’s perhaps no surprise that millennials find it difficult to save up for a deposit.
The above paragraph stands accused of representing an easy cliché of millennials wasting their money rather than investing in their future and there are certainly many who are prepared to sacrifice peer pressure and short-term pleasures to save for the deposit for their first home. However, it is also difficult to deny that today’s generation of first time buyers spends a far greater percentage of their income on consumerism than previous generations did.
With that in mind, those determined to tighten their belts and cut out unnecessary expenditure for the period necessary to save for a property deposit, do have a new generation of great technology-based tools to help. Ironically, many of these are in the format of smartphone apps.
Budgeting apps such as Money Dashboard, Loot, Squirrel, Spendee and Cleo, to name just a few of the best, can be a great aid to millennials saving for their first property. Just having a visual tracker of how much is being spent every month on what can make cutting out the fat much easier.
There are also other apps and digital services that cut the cost and complication of putting savings into investments that should, over time, help to grow them. Micro-investing and budget investing apps and services such as Moneybox, which rounds up purchases such as the 30p left on a £2.70 coffee to make it £3.00, and invests the difference in a choice of funds or stocks, can add up to significant sums over months and years without the user really feeling like they are cutting back their spending. Other options include Wealthify, an investment robo-advisory service that allows users to invest as little as £1 at a time into funds.
Plum is a Facebook Messenger-based chat bot that helps you open a stocks and shares ISA or general investment account and then choose a fund to start investing in, again from a pound a time. Low, medium, high and advanced funds are available with the latter offering options such as ethical companies, emerging markets or the big tech companies such as Apple, Amazon and Facebook.
Investing savings carries some risk as their value can decline if markets take a downturn. However, historical data demonstrates that over a 10 or 20-year period, diversified stock market investments return an average of around 5% a year. Every little helps towards that first deposit!
In conclusion, while millennials certainly face a challenge getting onto the property ladder, with a little determination and taking advantage of the assistance available, current market prices shouldn’t necessarily be an insurmountable barrier to owning a first home.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.