A report by the Resolution Foundation has suggested that the UK property market would be more difficult for first-time buyers despite forecasts of falling house prices.
The Resolution Foundation report indicates that first-time buyers could find the UK property market increasingly "out of reach" despite predictions of a decline in house prices following lockdown.
Results from a survey of agents show that a medium-term downturn in the housing market is expected following a short-lived boom after lockdown.
Decline in house prices
The Covid-19 pandemic has caused people in the UK to lose jobs, incomes to be affected and the economy to slump. A short-term increase in house prices and demand for property was observed due to the reopening the housing market and government support.
However, analysts say that this short-term boom will not last and over the next months, the Office for Budget Responsibility says house prices will eventually decline on average.
The OBR forecasts decreases of anything between 2% this year, to 22% by the later half of next year and its central forecast is an 11% decline by the end of 2021 and flatlining thereafter.
Is this favorable to first-time buyers?
House price falls are usually perceived as a chance for property to become more affordable for first-time buyers. The Resolution Foundation's Housing Outlook report says that some young people in stable jobs, with savings, and who have had the chance to put more aside in lockdown will benefit.
However, the report identified four major obstacles the typical first-time buyer must face in the UK property market.
The first one is that lenders will be requiring a larger deposit to protect themselves against borrowers being unable to repay. This is because typically, first-time buyers aged around 30 and saving 5% of their income, will need to save for more than 20 years to pay for it.
Another factor is that saving would be more difficult to do as some people have either had to cut or use some of their savings during lockdown due, in part, to lower incomes.
The third obstacle is the government's stamp duty holiday in England and Northern Ireland, which removes the advantage first-time buyers have over movers.
Lastly, the need to transfer residence will be more expensive as young workers may find the need to relocate, which would lead to additional travel costs that could eat up a portion of their savings. On the other hand, moving to the city for work is likely to mean higher housing costs.
Lindsay Judge, the report's co-author, said: "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."
"The current crisis looks set to deepen pre-existing inequalities and the growing divide between those who are able to look forward to home ownership, and those for whom this dream is increasingly out of reach," she added.
The Resolution Foundation is asking the UK government to develop a targeted support for first-time buyers to support their incomes, or give them some kind of advantage over homeowners and landlords when trying to purchase a house.
