First-time buyers in Britain will struggle to get on the property ladder even if the coronavirus recession triggers a collapse in house prices, a leading thinktank has warned.
Sounding the alarm after Britain’s economy plunged into the deepest recession since records began, the Resolution Foundation said house prices could fall by more than a fifth by summer next year.
It said although this might sound as if it should benefit young adults looking to get on the property ladder, first-time buyers would struggle because the Covid recession would also drag down their incomes while banks made it harder to get a mortgage.
Warning that the pandemic would deepen pre-existing inequalities and exacerbate growing generational divisions, the thinktank said only those who already had high levels of savings before the Covid recession struck would stand to benefit.
House prices staged a “mini-boom” last month after the chancellor, Rishi Sunak, launched a stamp duty holiday to reboot the property market from the first downturn in home values since 2012. However, the Office for Budget Responsibility (OBR), the government’s economics forecaster, has said prices could fall by 21% by the third quarter of 2021 before a long and slow increase in property values takes hold.
Faced with the prospect of a house price crash and with fewer teams available to process mortgage applications while staff are working from home, banks have started to pull back from offering high loan-to-value mortgages. Since lockdown, the number of mortgages on the market has plummeted by almost half, with several major lenders now refusing to offer mortgages without a much bigger deposit.
High loan-to-value mortgages – above 90% of the value of a property – are typically taken out by first-time buyers because they tend to have smaller deposits and are getting on the property ladder at a time when house prices have risen significantly faster than average earnings.
The Resolution Foundation said that in the 1990s, a typical young couple putting away 5% of their income each year could save enough for a deposit in just four years. By 2019, that figure had risen to 21 years.
Basing its estimates on the OBR’s most pessimistic forecasts for income growth and house prices over the next four years, it said the amount of time required to save for a deposit would only be reduced by one year, and that even that small gain would not persist.
The thinktank said the government’s stamp duty holiday – which is due to last until March next year – had also taken away the slim advantage that aspirant homeowners had in the market. This is because a typical first-time buyer outside London was already paying no stamp duty.
It also warned that private renters were suffering a significant financial hit during the pandemic. Although some households had managed to save money, the thinktank said just 13% of private tenants aged 24-35 had savings of £10,000, and that a quarter had been forced to dig into their savings as the economic fallout from the pandemic intensified.
Lindsay Judge, principal research and policy analyst at the Resolution Foundation, said: “The coronavirus crisis has had a big impact on the education, career prospects and incomes of young people – and unfortunately there’s no silver lining for this group when it comes to house prices.”