Many young people are stuck unable to purchase their first home even if house prices fall in the wake of the UK’s recession and the Coronavirus crisis.
A think tank, the Resolution Foundation, makes the claim after looking at a number of scenarios contemplated by the Office for Budget Responsibility, the independent body that advises government.
The foundation says plummeting incomes and rising unemployment, combined with low interest rates, mean that the most pessimistic OBR scenario – a sharp 22 per cent drop in house prices by Q3 2021, followed by a long and slow recovery – is a realistic one.
It also points out that house price falls are predicted in even the most optimistic OBR projection.
However, the foundation insists that first-time buyers will lose out on any potential benefits of cheaper housing, whatever the scenario.
It says that because house price falls triggered by the coronavirus recession would come hand-in-hand with corresponding falls in income, the impact on the time the average first-time buyer family needs to save for a deposit would be negligible.
Back in the 1990s, a typical young couple putting away five per cent of their income each year could save enough for a deposit in just four years. By 2019, that figure had risen to 21 years.
The foundation claims that even the OBR’s most pessimistic scenario would shave off little more than a year from this, and that even that small gain would not persist.
Although some households have managed to save more during lockdown, the foundation claims just 13 per cent of private renters aged 24 to 35 years had savings of £10,000, and that a quarter of private renters have been forced to dig into their savings since the pandemic began.
It estimates that if the average first-time buyer loan-to-value ratio fell to 80 per cent (the level observed in the wake of financial crisis), by 2024 the typical number of years required to save for a deposit would rise to 27 even if house prices fell by 22 per cent.
Finally, the foundation says the government’s recent decision to cut stamp duty also takes away the slim advantage that aspirant homeowners had in the market.
This is because the typical first-time buyer (outside of London) was already paying no stamp duty anyway.
“Combined with the hit to incomes, and the potential for tighter lending standards, this crisis has ultimately placed more barriers to homeownership than before in front of young people – regardless of expected falls in house prices” says the foundation.