Buying a First Home
For many young people, buying a home is becoming progressively more difficult as the price of houses increases while wages lag. Only 35% of 25-34 year-olds own a home in the UK, a drop of 20% since 1997. The Institute for Fiscal Studies reports that the average price for a house in England rose by 173% over the past two decades, while house prices in London rose by a staggering 253%. In contrast, wages increased by just 19% during that same period.
The fallout from this disparity is affecting young adults more than any other age class. The sharp increase in house prices only benefits older generations who already own homes, while further isolating the younger generation.
A deposit for a new home may only be 10% of the purchase price, but for young adults these days, that could be six months’ worth of income or more. To add to the problem, most mortgage lenders won’t allow prospective homeowners to purchase a home at more than 4.5 times their salary. Given rising home costs, this only allows the more affluent individuals opportunity to acquire higher-end properties. Even young adults with stable incomes would be forced to purchase cheap property with little resell value.
Demand for New Homes
The IFS encouraged the government to allow more homes to be built in the immediate future, suggesting lighter regulations in regards to planning restrictions as a way to jump-start that process. The IFS said, “Without increasing supply, policies to help young adults get onto the housing ladder will continue to push up house prices – and potentially rents too, which would hurt those young adults who will never be able to buy their own home.”
What Landlords Have to Gain
This initiative isn’t just good news for renters. Landlords stand to gain as well. Onward proposed giving buy-to-let landlords 100% capital gains tax relief if a tenant living on their property for three or more years was allowed to purchase it. Any gains from the tax relief would be split between the landlord and the tenant. This would mean extra cash for the landlord and a deposit for the tenant.
Although the Residential Landlords Association isn’t keen on the idea of tax relief for the sale of rental properties, they did indicate they would welcome the lower taxation. Despite the slight pushback from the RLA, landlords and tenants stand to profit upwards of 15,000 pounds in tax gains per sales agreement. This new policy would cost the government around 1.32 billion pounds but could give the housing market the boost it needs. Young adults would then have better opportunities to hop onto the housing ladder rather than remaining tied down to a rental property for an undetermined number of years.