How will the young of today ever afford a home?

There is again talk of rental controls in the UK amid serious concerns that the young of today will struggle to afford their own home in the future. While Sadik Khan has been criticised for the timing of his demand for devolved rental powers in London, the UK property market is in a mess. However will the young of today afford a home on current salaries and living expenses?

The statistics

When we look at property, rental and income statistics across the UK they do make for challenging reading:-

• Average home price £247,000
• Average rental income £941 a month (including London)
• Average rental income £781 a month (excluding London)
• Average full-time salary £35,000 a year
• Average part-time salary £12,000 a year
• Average combine salary £29,000 a year

There are obviously significant regional variations but this gives you an idea of the challenges facing the young of today.

Buying a home

If we look at the average full-time salary of £35,000, and assume a 20% deposit on a home purchase, that still leaves a mortgage of £197,600 which is a multiple of 5.6 times. The situation is a little easier when there are two salaries but this does not take into account council tax and general living expenses. It is also worth noting that despite the fact Brexit has cast a dark cloud over the UK property market, aside from London, there is no evidence that house prices are falling. The rate of increase is slowing but so far UK house prices continue to push ahead.

Renting a home

Cohabitation and shared rental properties (also HMOs) are becoming the norm across the UK as those in employment struggle to cover private rents. When you consider that the average rent, including London, works out just over £11,000 per year, this is a significant hit. Even if you were to exclude London from the figures the annual rental charge would still be £9,300 – before living expenses.

Social housing

As we have mentioned on numerous occasions, while the 1980s “right to buy scheme” effectively kickstarted the UK homeownership phenomenon, it has left the country dramatically short of social housing stock. We have seen housing associations and councils building new properties and new developments legally obliged to include a level of social housing – but there is still a shortage. When you also take into account the UK is running tens of thousands of private newbuilds behind demand, where does it all end?

Taxing investors

Property investors and landlords have been the target of numerous tax grabs over the last couple of years. Quite how the government can justify these increased taxes at a time when investment is needed more than ever is a mystery. For some time now the UK property market has been used as a cash cow to fill black holes across different areas of the government budget. The idea that they are “taxing the rich” to help the poor is one which no longer holds any real sway.

Unfortunately, those inheriting family homes are now in danger of being pulled into inheritance tax and other tax liabilities. The days when parents were able to leave their home to their children, in the knowledge they could afford to live there, are disappearing fast. So, while the Conservative party and the Labour party continue to “stand up” for tenant rights they could be accused of “biting the hand that feeds them”.

Will diminishing returns see some investors start to look elsewhere out with the UK property market?

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