Published : 4 years ago, on 25/03/2021

By John Ellmore, Director, NerdWallet

Before the onset of COVID-19,      the majority of young savers in the UK believed that homeownership was a difficult, yet eventually achievable prospect. 

Indeed, a 2019 survey from Halifax revealed that the majority (57%) of renters aged between 18 and 34 believed that they would one day buy their own property. However, in the wake of coronavirus, pessimism amongst millennials has risen. 

A recent survey of over 2,000 UK adults, commissioned by NerdWallet, revealed that over a third (38%) of individuals had put their long-term savings goals, such as a deposit for a house, on hold as a direct result of COVID-19. This figure jumps to 60% among those 18 to 34 year olds – the demographic usually considered to be      first-time buyers.

This isn’t surprising, given the great number of young people who have faced redundancy      or who have been put on furlough in the past year. When faced with sudden shortfalls in income, individuals have had to shift their financial priorities. Rather than planning long-term financial aspirations, many young savers are now focusing on short-term necessities such as credit card repayments and bills.

Positively, the Government has stepped in to offer addition short and long-term support to younger savers. In particular, the introduction of government backed 95% mortgages and the extension to the stamp duty holiday as announced in the Budget 2021, will be embraced by many prospective first-time buyers.

Obviously, these are positive measures from the Government – but will these short term measures be as beneficial in the long-term? 

Extension to the stamp duty holiday

Initially introduced on 8th July 2020, the stamp duty holiday was brought into effect to restimulate the property market which had been stagnant for several months. 

Largely, the holiday has been a great success. Not only has this resulted in a surge of transactional activity in recent months, according to figures from the Office for National Statistics (ONS), on average UK property prices had grown by £20,000 last year, reaching £252,000 at the close of 2020. 

As such, the Chancellor was prompted to extend the holiday for an additional three months, until 30th June.

John Ellmore

This means that homebuyers will not pay any tax on the first £500,000 of a purchase, resulting in possible savings of up to £15,000. The Government will lower this threshold to £250,000 between the 1st July and the 30th September, and by the 1st of October, it will return to its usual level of £125,000.

With firmer deadlines in place, it is likely that many UK adults will want to make the most of the savings and push forward plans to purchase their first property in the months ahead. However, would-be home buyers should proceed with caution.

Certainly, the holiday means that individuals will be able to make tax savings in the short-term. Yet, rushing into a major financial decision without conducting thorough due diligence could cause long lasting      financial damage.Ultimately, this could cause considerable damage to an individual’s financial situation further down the line.

The introduction of 95% mortgages

Another measure announced by Chancellor as part of the Budget statement this March, was the availability of government backed 95% mortgages. The means that the Government will offer guarantees to banks, thereby encouraging them to offer more homebuyers a mortgage – even when they are only able to offer a 5% deposit.

Given that price houses are on the rise, many first-time buyers will view the Chancellor’s move as a positive one;      it will allow individuals to get on the property ladder without having to save prohibitively high funds.

However, it is vital that young savers consider the potential disadvantages of the 95% mortgage schemes before pushing ahead with plans to purchase. For example, as buyers will have to borrow a larger amount of money to pay for a property, they will usually face higher interest on repayments. As such, adults may find themselves paying more in the long-term. 

Additionally, individuals should give careful consideration to negative equity. This can occur when the price of a property drops, and the owner ends up owing more money than the property is worth. In this case, repaying the mortgage in full when the property is sold becomes complicated. The likelihood of this happening drops when a person owns a higher the percentage of the property – so it might be worth considering saving a bit longer for a larger deposit     .

In the current climate, the measures taken by the Government will no doubt be viewed in a positive light by savers, as well as providing a powerful stimulus to the property market. That said, I would still urge individuals to weigh up their options and avoid making any knee-jerk decisions, as this could cost them dearly.

When thinking about buying a property for the first time, it is wise for individuals to conduct a thorough assessment of both their finances and the home in question, as well conducting thorough research when looking for an appropriate mortgage lender. This will ensure that first-time buyers are able to get onto the property ladder without causing long-term damage to their finances.

About author:

John Ellmore is Director for NerdWallet UK. NerdWallet is on a mission to provide clarity for all of life’s financial decisions. As an independent financial comparison website, NerdWallet provides consumers and businesses with useful tools and insights so they can make smart money moves. From choosing a bank account or breakdown cover to buying a house, NerdWallet is there to help individuals make financial decisions with confidence. Users have free access to our comparison tables and expert content, to help them stay on top of their finances and save time and money, giving them the freedom to do more.