Big house price falls are likely across the UK over the next 12 months but first-time buyers will not find it easier to get on the property ladder because of tighter credit conditions and falling incomes, according to a leading think-tank.
With the UK’s economy falling into its deepest recession on record, and unemployment rising dramatically as the government’s furlough scheme for workers winds down, most analysts are forecasting that house prices will suffer.
But according to the Resolution Foundation, even if average prices collapse by more than 20 per cent, in line with the most pessimistic forecast by the Office for Budget Responsibility — the fiscal watchdog, first-time buyers will still have a harder time buying a property than before the coronavirus crisis.
“Unfortunately there’s no silver lining for [young people] when it comes to house prices,” said Lindsay Judge, principal research and policy analyst at the Resolution Foundation.
“Although prices are projected to fall — perhaps dramatically — in the wake of the pandemic-induced recession . . . falling incomes and credit restrictions will likely make home ownership every bit as difficult as before for many young people,” she added.
The economic fallout of the pandemic was also likely to deepen inequality of access to housing, said Neal Hudson, an independent property market expert. Those with an existing cash pile or access to the bank of mum and dad would be able to take advantage if prices fall, but a home would still be out of reach for first-time buyers without deposits in place.
“When the price falls do happen they will be linked to a weakening economy and falling incomes. The house price-to-income ratio will remain relatively similar, possibly even worse,” he said.
According to the government’s most recent English Housing Survey, 34 per cent of first-time buyers use a gift or a loan from relatives to cover their deposit. A further 6 per cent use an inheritance.
According to the Resolution Foundation, it would take a young couple, both on an average salary, 21 years to save enough for a deposit if they put away 5 per cent of their earnings a year. In 1990, it would have taken them just four years.
First-time buyers without parental funding are also hamstrung by the withdrawal of higher loan-to-value mortgage products from the market, meaning they need to save a substantial deposit in order to buy. Almost every bank and building society pulled their 90 or 95 per cent loan-to-value mortgage products when the housing market was reopened in May.
One option for first-time buyers is to tap the government’s Help to Buy Equity Loan scheme, which allows them to purchase a house with only a 5 per cent deposit. Use of the loan has soared in recent months, according to some of the country’s largest housebuilders, in part thanks to the lack of other options for those without savings to put towards a deposit.
But the scheme is only available for newly built properties, which tend to be more expensive than second-hand homes.
“A crash is not the solution. The best solution is a period of recovery and economic growth, with house prices not growing as fast [as incomes],” said Mr Hudson.