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Laurence Baxter: A generation of buyers is being locked out of housing market

Laurence Baxter MM blog

Improving access to homeownership for young adults is of critical importance to society, yet the UK housing market is becoming the preserve of only the wealthiest.

An ICM survey published on 2 August indicates that, given the required annual income of more than £33,000 necessary to own an entry-level home these days, 20 to 29-year-olds have largely given up on the dream.

This threatens to create not an underclass but a whole ‘undergeneration’ of adults who will be barred from the benefits of homeownership.

There are still many commentators prepared to dismiss the importance of homeownership. Some argue this is part of the British obsession with owning a house. Such proponents are usually already on the housing ladder.

Others assert that it was precisely this obsession with owner-occupation that propelled the UK and US into the 2007 mortgage meltdown. But should the goal of accessible and sustainable homeownership be dismissed as flawed solely because of poor credit assessments and no income, no job or assets (‘Ninja’) mortgages? Is an idea necessarily bad just because it is executed abysmally?

Those critics fail to realise that a generation denied homeownership will also be barred from the personal responsibility that comes with owning a property and its contribution to cohesive and sustainable communities.

This undergeneration will also be barred from financial benefits such as enhanced credit-scoring and lower insurance risk that come with owner-occupation, which lead to lower-cost lending and cheaper insurance, respectively.

Most important will be the implications for old age. Homeowners who pay off their mortgages by retirement have significantly less demand on a retirement income and also enjoy a potentially critical source of equity and even income from equity release or downsizing. The undergeneration will have none of these benefits and will be taking rental payments to their deathbeds.

Our political masters would argue they are actively engaged by this issue. But despite the range of initiatives rolled out over the past few years, the criticism for not doing enough continues.

The Funding for Lending scheme to encourage banks and building societies to increase their lending to the real economy is having the positive effect of driving down mortgage rates. However, will this necessarily affect the opportunities for first-time buyers or will it only help existing borrowers in an environment where new lending is very restricted?

NewBuy does show promise but even this is limited. Even if it gets introduced in the volume needed to make a difference, with average entry-level property prices in London still hovering about the £250,000 mark, raising even £12,000 deposit under NewBuy will be a tall order. That is if there is sufficient newbuild property on offer that does not get snapped up by the buy-to-let market.

If these problems are not addressed, we will have a society where wealth ownership/accumulation will be an ever-greater cause of social inequality.

Laurence Baxter is head of policy and research at the CII

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