Many articles have been written about why today’s young people can’t afford to buy a home. Such articles focus on their supposed preference for spending money on frivolous things like “avocado on toast” and “brunch” or prioritising travel over saving. But is that all there is to it? But could there be other major external factors hindering millennials from saving for a house and getting on the property ladder?
Let’s look beyond the headlines and explore some helpful tips on how millennials, also known as ‘generation rent’, can save enough to become ‘generation buy‘.
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Why is it hard for millennials to save for and afford a house?
When it comes to homeownership, millennials – those aged between their early 20s and their late 30s – face a slew of challenges.
The most significant one is skyrocketing house prices. Here in the UK, house prices have risen by 8.7% in the last year alone (February 2020 to February 2021). In the last twenty years, they’ve gone up 188%.
Unfortunately, wage growth has not kept pace with the rise in house prices.
The average salary for people aged under 30 years is currently £25,980. That represents an increase of just 67% over the last two decades.
Indeed, new research from payroll software provider Mitrefinch shows that the UK is lagging behind when it comes to annual salary increases. The UK currently ranks 20th behind countries such as France, Ireland and the United States.
When combined with a high cost of living, including the average rent rising to £832.25 – which means that millennials spend nearly half of their salaries on rent – it’s easy to see why many are finding it difficult to afford a home.
How can millennials save for a house?
The government has recognised the challenges that millennials and other first-time buyers face when getting on the property ladder. As a result, a number of schemes have been introduced to help.
These include the mortgage guarantee scheme, which allows buyers to get a mortgage with a 5% deposit.
However, Greg Wilson, CEO of insurance comparison site Quotezone, believes that while schemes like the mortgage guarantee scheme are beneficial, they do not take into account other financial barriers that prevent millennials from getting on the property ladder.
He reckons that it will take more to convert ‘generation rent’ into ‘generation buy’.
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In light of this, he has provided some tips on how millennials can save enough for their first house.
1. Set up an ISA to help save money
Setting up a Lifetime ISA or contributing to an existing Help to Buy ISA can help millennials save money for their first house.
With a Lifetime ISA, you can save up to £4,000 every year. You’ll get a free 25% top-up from the government.
With a Help to Buy ISA, you can save a total of £12,000 and also receive a government top-up of 25%.
2. Review all direct debits and cancel any luxuries you can live without
This can include, among other things, cancelling unnecessary subscription services, reducing eating out or ordering takeaways, and cooking and packing your own meals at home.
3. Compare mortgage providers
Rather than going with the first mortgage provider you come across, Wilson advises shopping around. This will improve your odds of getting the best possible deal.
4. Check out how competitive your suppliers are
Requesting quotes and comparing prices from gas, electricity, phone and internet providers can help you identify cheaper deals for your utilities and possibly save money.
5. Don’t auto-renew insurance policies
If your insurance is expiring soon, do not auto-renew it. Instead, use comparison websites to compare policies from various providers first. You rarely get the best deal by being loyal to your provider.
Final word
While it is clearly harder for the young people of today to save for and afford a house, it is not impossible. Millennials simply need to be aware of and use all the tools at their disposal to help keep costs low and savings as high as possible.
