Coronavirus crisis will shut young people out of housing market even as prices fall, ministers warned
The report will make for grim reading for those hoping to buy their first home. (PA)
A sharp drop in house prices will have a “negligible” effect on the ability of young people to get on the property ladder as they suffer a squeeze in their incomes because of the coronavirus pandemic, the Government has been warned.
Labour accused ministers of prioritising “tax breaks to landlords and second homeowners” during the crisis as a new report by the Resolution Foundation said tighter lending and a hit to people's cash reserves would see Britain’s young unable to benefit from a plunge in the value of homes.
And the think tank warned that a much-heralded cut in stamp duty will shut down one of the few advantages that first-time buyers have in the property market.
The Resolution Foundation predicts that a 22% drop in house prices in the third quarter of 2021 is not an unrealistic prospect, followed by “a long and slow recovery” in their value.
But while a fall in the value of property is typically “helpful to first-time buyers”, the organisation's new report warns that “first-time buyers will lose out on any potential benefits of cheaper housing”.
It finds that while some households have managed to save money during lockdown, just 13% of private renters aged 24-35 years had savings of £10,000 going into lockdown, while a quarter of renters have been forced to turn to their savings since the pandemic began.
And the Resolution Foundation warns that if banks tighten their lending conditions to make 80 per cent mortgages the norm as they did in the 2008 financial crisis, by 2024 it will take the average renter 27 years to save for a deposit — even if house prices tumble by 22%.
Ministers are also told that a move to cut Stamp Duty “takes away the slim advantage that aspirant homeowners had in the market”, because the typical first-time buyer outside of London is already exempt from the charge.
"Only those who already had high levels of savings before the pandemic started, or those who are able to borrow from their family, will truly benefit from the house price fall" - Lindsay Judge, Resolution Foundation
Lindsay Judge, principal Research and policy analyst at the Resolution Foundation, said: “The coronavirus crisis has had a big impact on the education, career prospects and incomes of young people – and unfortunately there’s no silver lining for this group when it comes to house prices.
“Although prices are projected to fall – perhaps dramatically – in the wake of the pandemic-induced recession, this drop won’t make things any easier for typical young first-time buyers looking to purchase their first home.
"Instead, falling incomes and credit restrictions will likely make home ownership every bit as difficult as before for many young people.
“Only those who already had high levels of savings before the pandemic started, or those who are able to borrow from their family, will truly benefit from the house price fall.”
She added: “Going forwards, policymakers must ensure that young peoples’ incomes are protected in the wake of the coronavirus crisis, and that their competitive advantage as first-time buyers is maintained when the stamp duty holiday comes to an end.”
Seizing on the report, Labour’s Shadow Housing Secretary Thangam Debbonaire said: “Everyone deserves a secure, affordable home, whether they own or rent. The UK is in recession for the first time in 11 years, and more people are likely to struggle with the cost of housing.
“So far, the Government has prioritised tax breaks to landlords and second homeowners. It needs a plan to tackle the jobs, homelessness and housing crises.”