A prominent think tank has warned that the coronavirus pandemic will exacerbate the longstanding inequalities which affect those seeking to buy their first home.
The Resolution Foundation believes that even if the recession caused by the crisis triggers a collapse in house prices, first-time buyers will still find it difficult to gain a footing on the property ladder. In their opinion, house prices could fall by more than 20pc by summer 2021, after the UK’s economy nosedived into the deepest recession since records began.
While this sounds as though it should benefit young adults seeking to buy their first home, they will in fact struggle for two main reasons. First, the recession will reduce their incomes and second, banks will increase the restrictions on mortgages.
The think tank takes the view that only those who had a high level of savings before the outbreak of the virus will benefit from a drop in house prices and warned that Covid-19 will not only heighten pre-existing inequalities but also increase rising inter-generational divisions.
Chancellor Rishi Sunak launched a stamp duty holiday in early July in an attempt to re-energise the property market following the first fall in home values since 2012. This course of action resulted in a mini-boom in house prices later in the month.
Yet the Office for Budget Responsibility (OBR), the Government’s economics forecaster, has predicted prices could fall by 21pc by the third quarter of 2021 before a long drawn-out rise in house prices gains momentum.
Think tank cites fewer mortgages and larger deposits
Banks have already started to retrench by cutting back on high loan-to-value mortgages, in advance of a possible house price crash, because they have fewer staff available to process mortgage applications while the majority work from home.
Several major lenders are now refusing to offer mortgages without a much larger deposit from potential buyers and the number of mortgages on the market has plunged by almost half since lockdown ended.
First-time buyers take out high loan-to-value mortgages, typically more than 90pc of the value of a property, because they tend to have smaller deposits and are currently would-be purchasers at a time when house prices have increased sunstantially faster than average earnings.
According to the Resolution Foundation, a typical young couple saving 5pc of their income per year in the 1990s could save sufficient for a deposit in just four years. That figure had jumped to 21 years by 2109.
As such, basing its estimates on the OBR’s most downbeat predictions for house prices and income growth over the next four years, the amount of time it would take to save for a deposit would be reduced by only one year, and even that small gain would be fleeting at best.
The think tank also pointed out that the Government’s stamp duty holiday, due to last until March next year, had removed the slight advantage that aspiring homeowners had in the market. This is because a typical first-time buyer outside London would have paid no stamp duty in any case.
Private renters find it hard to save
Furthermore, the foundation drew attention to the fact that private renters have been taking a significant financial hit during the crisis.
While some households had managed to save money, only 13pc of private tenants aged 24-35 had savings of £10,000, and 25pc had had no choice but to dig into their nest eggs as the economic consequences of the pandemic ramped up.
Lindsay Judge, principal research and policy analyst at the think tank, commented that despite the considerable impact the pandemic has had on young people’s education, career opportunities and incomes, sadly there are no bright prospects on the horizon for this demographic group as far as house prices are concerned.
