In the 1990s, 65% of young adults aged under 35 owned a house, today that number has declined to just 27%. A poll conducted by the U.K. Department for Levelling Up, Housing and Communities found that 90% of Britons shared the dream of owning a home, yet 60% believe they never will.
The sentiment among young adults in Britain is clear – we are facing an unprecedented homeownership crisis, with no apparent fix. But what is causing this? There isn’t one root cause, but rather several structural barriers, including:
1. Rising home prices and stagnating wages
2. Decline in household savings
3. Discontinuation of Help-to-Buy
4. Outdated mortgage system
1. Rising home prices and stagnating wages
House prices have significantly outpaced income growth. Since 2015, home prices have risen by 44% pushing the average price of a home to £270k, while the average household income growth during the same period has only increased by 9% to £31k. The astronomical rise in house prices in the recent years has been largely driven by a structural undersupply of housing in the U.K. – simply put, there just aren’t enough houses going around for everyone who wants one.
The affordability problem is compounded by mortgage providers who generally limit the total mortgage borrowings to 4.5x of the borrower’s gross annual income, which is well below the average 8.8x house price to wage ratio in the U.K. This implies that aspiring homeowners either need to wait substantially longer to get on the property ladder or buy smaller homes than what was possible in the past.
2. Decline in household savings
Income stagnation over the past years, coupled with rising inflation has led to a situation where saving for one’s deposit has become a major hurdle for homeownership. The generation in Britain born in the 1980s is the first post-war generation to have a lower median income by their early 30s than the generation of the decade before. In fact, they have a 20% lower median wealth by their early 30s compared to those born in the 1970s at the same age. Today, it takes an average buyer 6.6 years to save for their deposit, 1.1 years longer than in 2012.
3. Discontinuation of Help-to-Buy
The government has tried to solve the issue of affordability and high deposits by introducing the Help-to-Buy scheme. The scheme allows aspiring homeowners to apply for a home equity loan, worth up to 20% of the home value (up to 40% for London), in order to be able to buy thehome with a 5% deposit. In 2021, the programme was used by over 42k homebuyers.
The Help-to-Buy scheme is due to expire in 2023, with no government scheme announced to replace it. This represents a big blow to first-time buyers, who are struggling to save for their deposit.
4. Outdated mortgage system
The economy is changing and so is the nature of work. The 21st century has seen the rise of self-employed and ‘gig’ economy workers. In 2022, 15% of all adults worked in the gig economy compared to just 6% in 2016. Despite the lasting shift in the demographic of the workforce, the mortgage system has failed to adapt.
High street lenders generally have stricter underwriting criteria for workers without stable incomes, with many banks outright rejecting these applicants. This has created a barrier to homeownership for a sizeable portion of the modern workforce.
The Jrny solution
At Jrny, we seek to breakdown these barriers preventing young adults from buying a home through our Jrny Plan. The plan allows a minimum 2% contribution to move-in, we give you full flexibility to buy the house at the end of the lease or walk away with the value of your Equity Credits. We welcome gig economy workers with open arms. Our mission is simple, we are here to bridge the homeownership gap in a financially sustainable, yet accelerated way.
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