The top 5 reasons why our kids will never get a mortgage

by CCCS on 01 September 2011  |  7 comments
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If you think buying is tough now, it's only going to get worse for young people.

Generation X-ers - children born into the 1980s era of ‘Right to Buy’ council houses and increasing personal wealth and reward - were brought up by their baby boomer parents to know that it was vitally important to get on the property ladder as quickly as possible.

And many of us did that. Some have already climbed up the ladder by profiting from the mid-2000s housing boom and steadily increased the size and value of the property they own.

Some of us even took advantage of property ‘investments’ and bought buy-to-let houses, creating a steady income stream from both rent and equity.

Credit was easily available, it was affordable and in some cases the banks went out of their way to make borrowing for property easy (seen visibly with likes of self-certification mortgages).

However will it ever be that easy for our children and those looking to buy for the first time now? Is there a crisis in the availability of homes in the UK?

Old and young

As Matt Griffith of pricedout.org has said; "This is a tale of two generations. Home ownership has been growing strongly for older age groups despite the credit crunch.

"For younger groups it is the exact opposite - home ownership has slumped and current trends are making it even more of a distant dream.”

We don’t think many of our children will ever get a mortgage and will ever get on the property ladder.

Let's take a look at the top five reasons our kids will not get a home to call their own…

1. University fees

We’ve blogged about children going to university before. This year is really seen as the cut off year before costs sky rocket. Figures of £60,000 for three years at university are being bandied around for next year’s induction.

This sort of debt burden being placed on getting an education will mean that for many getting on the property ladder will be impossible.

2. Lending

We mentioned self-certification mortgages already, but the eye-watering 125% mortgage deals available in the past were just as crazy.

Some would argue these deals were one of the many reasons why we ended up in this mess, though they are now long gone.

As a result, if your children want to get a mortgage now they’ll need a hefty deposit and the lending terms won’t be as sweet as they were in the past. But given that rents are rising above the inflation rate while incomes stagnate, how can the average person or couple looking to buy their first property afford a 25% deposit?

3. The market

Who would want to buy into a market that’s still seen as overpriced?

Sure, over the past few decades we’ve seen a massive rise in house prices with many people benefiting from rapid rises in equity. By and large the baby boomers have profited from the property boom.

However at CCCS we’ve also seen people who have bought at the wrong time and ended up stuck with negative equity of £25,000, £50,000 or even £100,000 due to rapid falls in the market.

Would anybody want to second guess the market now? Would anybody want to risks the trap that is negative equity?

4. Inheritance

In the past, being left a house by your parents was commonplace, and there used to be a great inter-generational transfer of wealth. This is steadily changing as pensioners today are finding that they’re in debt and overburdened too, having to pay for their palliative care in their final years.

Many pensioners are turning to equity release in order to afford health care and to cover up for the shortfalls in pensions, as well as the steadily rising cost of living.

A few pensioners are even releasing money early through equity release to help relatives now. All this added together means that when elderly relatives die, the bank may very well get the house before the kids do.

5. Family matters

We got married, bought a house and had kids. If our children want to have a family they are going to have to think seriously about the costs involved, not just of bringing up children but also the cost of educating the brood to the age of 21.

Our children are going to have to make the choice between buying a house and having kids. Financially many of them will only be able to do one of the two.

We’d be interested to hear any of your comments; has the bottom rung been removed from the property ladder for the next generation? What will our kids do? And are we to blame for this?

We brainstormed this topic recently and found dozens of factors that are negatively affecting the housing market, and we’ll focus on this again in the future.

If you’re sliding down the property ladder at a rate of knots you might want to use our online counselling service Debt Remedy to soften your landing. It will give an instant solution to most debt-related problems whether you own a mansion or rent a maisonette.