Do you remember when a Freddo bar cost 10 pence? Brexit was in the same league of minority pursuits as Warhammer, you could get a maintenance grant to help with living costs at university, and a young family could save for a typical mortgage deposit in three years. For the young, it all just about worked.
Today a Freddo bar costs three times that amount. A maintenance grant is now a loan. It takes sixteen years longer for the same family to save enough money to secure a mortgage for the same house. Politics seems to move in a direction opposite to the life trajectories that began during and after the 1980s.
While most goods and services have become quicker and more accessible, the time it takes to save, and then pay, for the same products – a house, an education, a chocolate bar – has slowed and been made more difficult with less assistance from the state. Often they are rented instead.
Your granny’s pension shouldn’t be reduced to fund free university tuition. Neither should government adorn people with baubles because they were born after England won the world cup. Yet government can take a more supportive role in young people’s deposit saving; shortening the time it takes to save for a deposit without deforming the structure of the housing market.
Currently there is a black hole in young people’s deposit savings. Recent research from Localis finds that, of those who do not own their home, only 30 per cent of 25-49 year olds and 21 per cent of 18-24s are saving towards a deposit each month. Whether driven by stagnant wage growth, increased consumption or both, these figures show the vast majority of people are building no financial capacity with which to get a mortgage in the future.
Meagre deposit savings is just one issue holding back young people from buying a home. So do stringent lending criteria and unaffordable house prices.
Yet deposit saving is an issue government can immediately address in the upcoming Budget. The pension auto-enrolment scheme could be tweaked to allow employees aged between 18 and 40 to choose for their contributions, their employer’s and the state’s to be directed towards saving for a mortgage deposit instead.
Following the pension scheme’s initial success – over 6.7m people have been automatically enrolled – the number of young people saving for a deposit would increase significantly. And so would the rate at which they accumulate savings: in the Localis report. we calculate a person on a salary of £30,000 would save the median deposit paid by first-time buyers (£22,000) within 10 years of using the scheme. Supporting young people in this way would do much more to lower the rungs of the housing ladder than cuts in stamp duty reported to be announced next month.
In accepting there is a saving problem that ought to be addressed, government can also set the necessary parameters for its response. A recent Council of Mortgage Lenders report found there is only a “slim chance” someone over the age of forty, who does not already, will own their home. Given the tendency of banks to discriminate against lending to people one or two decades from retirement, the sad reality is government can only do so much for them. Deposit saving is a race against time. This is why auto-enrolment for deposit saving should be capped by age.
In a sense, when it comes to supporting home-ownership, the renters of Generation X should be forgotten. Policy effort and resource would be better spent making the private rental sector safer and more comfortable.
The politics are not pleasant, nor the consequences – but to maintain a home-owning democracy, government must choose to support one generation above the other.
Jack Airey is head of research at the think tank Localis.
