How London’s High Rental Prices Stop Young People From Buying a Home | GroundReport
How London’s High Rental Prices Stop Young People From Buying a Home – GroundReport
How London’s High Rental Prices Stop Young People From Buying a Home
The population of London continues to grow from both internal and external migration. Individuals and families are moving to the capital from other areas of the UK to seek work, while immigrants from the EU and beyond choose London as their first foothold on the steps to a new life.
While incoming numbers continue to grow, those leaving the city are falling, as many see their best hope of riding out the current economic downturn as being to remain in the area which has demonstrated the greatest economic resilience. Current estimates put the population at 7.9 million, a rise of 8% in the years 1997 to 2011, a figure expected to rise by 1.2 million in the coming 20 years. Unfortunately, the supply of affordable housing has failed to keep pace and has risen only 4% over the same time period.
Particularly hard hit are young people who are seeing their goal of independent living becoming a distant dream as the demand for affordable housing significantly outstrips supply. How the Rental Sector is Draining the Supply of Housing for First Time Buyers Contributing to the problems facing London’s potential first time house buyers is the booming buy to rent market. Landlords are able to develop a growing portfolio of properties to rent, achieving high rental returns which in turn allow them to afford the deposit on their next property.
Using the income from their rents, they are able to pay off the all time low mortgages ensuring that house prices at the lower end of the market remain high. This effectively cuts off the supply to the hard pushed first time buyers with limited capital. It has been estimated by UK estate agency, Rightmove, that those renting must now allow up to half of their take home pay to afford their rent; up 13.6% from 2009 levels.
In the same period, the rate of take home pay has only risen by 5.4%. With the cost of living reaching an all time high, it is becoming virtually impossible for young workers to save for an adequate deposit for their new home. 72% of London’s young buyers have to rely on their parents to supplement their mortgage deposit. Indeed, the term for this phenomenon has entered common usage as ‘the bank of Mom and Dad’! The Council of Mortgage Lenders has stated that the high property prices in London are having a crippling effect on young people struggling to get their foot on the property ladder.
While the average UK house price stands at £163,000 (243,500 USD), in London it is £364,000 (566,000 USD). The average age of a first time buyer is 29 outside of the city and an astonishing 43 years of age in the capital!