Renters put homeownership on the back-burner

As younger generations struggle to get on the property ladder, research suggests that many are turning their back on becoming homeowners. Whilst, for some, it can be the right decision, it’s important to look at what steps renters can take to improve their financial security too.

The challenges of getting on to the property ladder have featured heavily in the news. A combination of rising prices, more stringent mortgage checks and stagnant wages means many young adults are struggling to buy their first home. It may not be an issue that affects you directly but your children or grandchildren.

Focusing on other goals

As young adults are finding it difficult to purchase a home, research suggests that many are now turning their attention to other financial goals. According to research by ING four in five Britons who don’t own property say they are now prioritising other financial goals. Some 82% are focusing on aims such as:

  • Raising a family
  • Paying education debt
  • Living in a convenient location
  • Travelling
  • Funding hobbies

For some, this shift in priorities is down to feeling locked out of the market. Almost 40% of renters who have never owned property say they don’t expect to ever buy a home. Just 9% plan to purchase a home before the age of 30.

The latest research follows a wider trend in the decline of homeownership. In 2003, 71% of homes were occupied by the owner. By 2019 this had fallen to 64%.

Of course, there are plenty of reasons why renting a home is preferred to homeownership. It can provide greater flexibility for young adults focused on their career and willing to move for opportunities. Renting also comes with far less responsibility for the property and means maintenance costs don’t have to be considered.

However, it’s still important to consider financial security.

Building a short-term safety net

Your short-term financial security should be a priority, whether you’re happy renting or looking to purchase a home in the future.

Even the best-laid plans can hit road bumps, so having a safety net can help ensure you’re able to meet financial commitments and keep goals on track. This should start with an emergency fund. Ideally, this should be around three months of outgoings, giving you a fund to dip into when an unexpected bill crops up. It’s a step that can provide you with a sense of security even if you’re renting.

Whilst we often consider financial protection products at the point of buying a home, they can be just as valuable for renters. These products can provide a regular income or lump sum when you need it most subject to the terms of the policy. You may not have a mortgage to pay, but rent is just as important for your security and choosing the right product for you can deliver peace of mind. If you’d like to discuss income protection, critical illness cover or life insurance, please contact us.

Improving future financial security

It’s also important to look to the future. Do you plan to purchase a home at some point? Or do you plan to continue renting?

If you hope to buy in the future, it’s wise to have a goal in mind and milestones for achieving this. If it’s still several years away, it can be easy for short-term financial goals to become your focus and derail plans of homeownership. Setting aside a regular amount towards a deposit, for example, can help ensure you remain on the right track.

If you plan to rent long term, there are other considerations to make. At the point of retirement, for instance, many homeowners see their outgoings decrease because they’re no longer paying a mortgage. However, if you’re still renting, you should consider how your income will cover this. Putting more money into your pension now, planning to work for longer or using other assets throughout retirement are all options that could improve long-term financial security.

4 ways to raise a home deposit

If homeownership is a goal, raising the deposit needed to secure a mortgage can be a challenge, but there may be ways you can reach your target quicker.

  1. Use a Lifetime ISA (LISA): A LISA is a type of ISA aimed at those saving for a first home or retirement. You must be aged between 18 and 40 to open a LISA and each tax year you can add £4,000. The benefit with a LISA is that the government will add a 25% bonus to your contributions. Add the maximum during a year and you can receive £1,000 in ‘free money’ to help toward a deposit. However, keep in mind that if you withdraw from a LISA before the age of 60 for a reason other than buying your first home, you will lose the bonus and a portion of your own contributions.
  2. Consider a Help to Buy Equity Loan: The Help to Buy Equity Loan scheme allows you to borrow money from the government to reduce the amount of deposit you need. You’ll still need a 5% deposit but can borrow up to 20%, taking a mortgage to cover the remaining 75%. It can help you purchase your first home quicker. However, the loan will need to be repaid and you should consider how you’ll do this. There are also restrictions on the home you can purchase, it must be a new build, so make sure it’s right for your plans before proceeding.
  3. Ask the Bank of Mum and Dad: Parents and grandparents have been helping first-time buyers more than ever. In fact, the Bank of Mum and Dad supported one in four housing transactions in the UK in 2018. If this is an option, your homeownership dream could be closer than expected. It’s important that a frank discussion takes place before using family members to build a deposit, for example, would it be a gift or loan? And do they have the means to still be financially secure if you go ahead?
  4. Research family mortgages: Lenders recognise that raising a deposit is challenging for younger generations and a family mortgage may provide a solution. This allows you to access a mortgage using a loved one’s home as security. Again, it’s important to fully research this option and ensure both parties fully understand what they are agreeing to before moving forward.

Whether you’re a young adult that wants support planning long-term finances or a grandparent that wants to help out with a home deposit, we can help you. Get in touch with our team to arrange a meeting with a financial planner that can help provide solutions.

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