More than a million first-time buyers may put plans on hold due to cost-of-living crisis

Authored by Aviva

One in five blame inability to afford a home on cost-of-living crisis and inflationFluctuating rates resulting in up to 50% underestimation of mortgage costsParents and grandparents could gift or loan up to £23bn nationally to help their younger relatives

A new survey from Aviva has revealed more than a million Brits under 45 could rule themselves out of the first-time buyer market, due to pressures caused by the cost-of-living crisis.

The survey, focused on under 45s who have never owned a property, identified that just under half (46%) of those asked were not currently house-hunting, but intend to in future, with a further 16% saying they have no intention of doing so. Of these, one in five (20%) specifically cited the cost-of-living crisis and inflation as making buying a house unaffordable.

If these attitudes were reflected proportionally among those who are not homeowners across the UK, this equates to more than a million people under 45 being forced to shelve plans to enter the housing market for the first time.

The survey also shows the cost of a mortgage is being substantially underestimated, with the potential to dissuade more people from moving onto the property ladder.

Across the country and all age groups, survey respondents intending to buy or in the process of buying their first property say they expect to pay £196,700 on average and anticipate putting down £25,210 as their deposit. Based on these figures, they say they are expecting a monthly mortgage payment of £718.60.

However, when these figures were put into a high street building society online mortgage calculator this week, the results show you would be paying £1,103.86 per month on a 2-year fixed deal, or £928.07 monthly on a 2 year base rate tracker, an underestimation of up to 54%. 

Matt McGill, MD Aviva Equity Release, comments: “The cost-of-living crisis, and other factors resulting in higher inflation and interest rates, have put pressure on people juggling competing financial demands. Events of the past few months have created uncertainty; nobody can predict the outlook for the coming months with any confidence.

“Despite resilient housing market activity, it now appears rising mortgage rates are dissuading many from taking that important first step onto the property ladder. In years to come, this will have a knock-on effect for younger people today. Wealth held in property contributes greatly to someone’s overall assets and can be used as a valuable source of funds, particularly later in life. In the event of any property market adjustment, most people’s most valuable asset will still be their home.

“Earlier this year, our retirement survey showed those over 75 had on average lived in their property for 28 years. Over that time, they have seen a more than five-fold increase in their property’s value. Sixty-five to 74-year-olds are also seeing a more than four-fold increase in the value of their property, over the average 24 years they have owned it.”

More parents give or lend, but grandparents give or lend more

The role of intergenerational giving remains as important as ever for helping cash-strapped first-time buyers. Across the study, 12% of respondents said they were expecting a gift or loan from parents to help meet their costs, and 4% said they expect the same from grandparents. This expectation is higher among the youngest age group (18 – 24), with 15% saying their parents, and 6% saying grandparents, would help them.

Individual contributions are more generous from grandparents – typically they contribute a gift of £18,850, and £16,990 as a loan, compared with £17,730 and £14,130 respectively from parents.

If this level of gifting or loaning were seen across the first-time buyer market, this would represent more than £23bn of first-time buyer costs being provided by the buyer’s family.

Matt McGill concludes: “The amount of support being given or intended by different generations of the family to first-time buyers is substantial. We have seen this trend, particularly of grandparents providing funding, increase in recent years. Family members are more and more willing to use wealth they have accumulated in property over the years to provide younger people with a leg up onto the property ladder.”