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Young homeowners worried about housing debt

Young homeowners worried about housing debt

Category: Mortgages

Updated: 09/06/2014
First Published: 09/06/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Owning your own home is something that a lot of people aspire to, however it can often be difficult to make that dream a reality. Young people in particular are finding it hard to save up a suitable deposit and make that first step on the housing ladder, but research has shown it isn't just the initial cost that's a barrier – it's the ongoing affordability concerns too.

The 2014 Homeowner Survey, carried out by HomeOwners Alliance and myhomemove, found that 72% of homeowners aged 25-34 have used affordability finance options to buy their first home, compared to 62% of homeowners overall. These finance options include:

  • Having an extended mortgage term of over 25 years (28% of young homeowners compared to 17% of all age groups)
  • Borrowing from friends or family (24% vs. 11%)
  • Low deposit/high loan-to-value mortgage (12% vs. 8%)
  • Government or shared ownership scheme e.g. Help to Buy (10% vs. 4%)

Of those young homeowners that have used such financing, 49% are worried about their long-term housing debt compared to just 30% of all homeowners, with key concerns being the size of their mortgage and ability to repay it (a fear of 23% of young homeowners surveyed) and the potential to be left with negative equity (20%), while 19% are worried about their monthly mortgage repayments over the long term.

These figures highlight the additional burden – and extra financial stress – placed on the younger age group, particularly at a time when many will have additional financial commitments or may be starting a family.

It poses an even bigger concern when the threat of rising interest rates are added in – 49% of younger homeowners fear that a rise in interest rates would make it even more difficult to afford repayments. It isn't only a concern of the younger age group, however, as 34% of homeowners nationally feel the same way.

Paula Higgins, of the HomeOwners Alliance, commented: "As house prices rise and homeownership levels drop, young people are left with no choice but to resort to desperate measures to realise their dream of owning their own home.

"This goes to show how the housing crisis is giving young people a raw deal. Schemes to help make homes more affordable in the short term do little to solve the fact that we need many more new homes, in the right places and at the right price."

Rising house prices could perhaps be pushing younger homeowners into buying as they feel pressured to buy before prices rise even more, with house prices being a particular concern for 77% of first-time buyers. This could be putting them at a disadvantage, as Doug Crawford of myhomemove says:

"Our own data shows that over the past year, the average deposit size has decreased by 1.2% despite house prices rising by nearly 8% - just showing how much schemes like Help to Buy are having an impact, especially outside of the capital.

"For first time buyers, those likely to be aged 25-34, this is a double edged sword; yes it helps them onto the property ladder but there is a real danger that unless they have bought a home they can grow into, they will become trapped as market prices outpace them or a future downturn puts them into negative equity."

The key to overcoming these barriers is to be as prepared as possible. Building up a suitable deposit will ideally mean there's no need to turn to alternative financing options, helping to reduce the ongoing financial burden and overall mortgage debt – and resulting repayments – to keep long-term affordability concerns to a minimum.

Nonetheless, despite these concerns, aspiration to own is still high – and is growing. Latest figures show that 68% of non-homeowners would like to own in the future, up from 65% in January 2013, showing that, happily, barriers to ownership and ongoing concerns aren't dampening potential buyers' appetites.

What next?

Set up a savings account to build your deposit

Find the right mortgage deal to keep your repayments as low as possible

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.