‘No one has a God-given right to live in Notting Hill’

 Young would-be homeowners are throwing too much money away on non-essentials

Source - daily telegraph 26/06/23

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Stepping foot on the property ladder can take years of sacrifice and commitment. Now, surging mortgage rates means buying a first home has become even more of a struggle.

But young would-be homeowners are making things needlessly harder for themselves, according to brokers who comb through their bank statements.

Russell Quirk, a property expert, says today’s first-time buyers, who now face interest rates north of 5pc on home loans, are throwing too much money away on non-essential spending.

“When I bought my first property when I was eighteen years old the interest was 10.5pc,” he says.

“I did that, albeit with lower house prices, without the distraction of a car on lease, Deliveroo, Amazon, Netflix and bubble tea.

“Interest rates over the last ten years have been significantly lower than twenty or thirty years ago. In historical terms 5.9pc is what I would call normal. It’s not a nightmare, it’s not scary, it’s normal.”

While recognising his views will touch a sore spot for many, Mr Quirk says spending hundreds of pounds a month on takeaways and shopping is not an uncommon sight in his clients’ statements.

“When we go through the bank statements of first-time buyers we are astonished.” He adds the spending he sees from younger buyers today is “higher than twenty or thirty years ago.”

‘No one has a God-given right to live in Notting Hill’

Surprisingly, paying for subscriptions services like Netflix and Spotify could help some buyers get on the housing ladder. In May, Leeds Building Society (LBS) teamed up with Experian to allow 12 months’ of regular direct debits to be factored into mortgage decisions.

So far LBS is the only lender to count subscriptions as evidence of an applicant’s financial responsibility. But elsewhere lenders are looking for ways to extend their offer to young adults, 17pc of whom had moved back in with parents by January this year, according to research by credit card provider Capital One.

In the same week LBS announced it would consider subscription payments for buyers who may live with their parents and not pay utility bills, Skipton Building Society became the first lender to unveil a deposit-free mortgage since the financial crash.

The 100pc mortgage is exclusively for renters, who may find it difficult to save while meeting monthly rent payments, and is based on a credit and affordability check that, unusually, takes into account 12 months of on-time rent payments.

With the mortgage crisis forecast to cause a drop in house prices and wages rising 7.2pc in the three months to April, cutting out unnecessary spending now is the fastest way to homeownership, Mr Quirk says.

“Everything should be seen in context. Are house prices higher? [than when he purchased his first home] Yes, they are. Let’s not forget that wage growth is higher than house prices. People are getting wealthier versus house prices.

“If you live in Maidenhead or Aylesbury or Sevenoaks and you are lamenting the fact you can’t afford a two bed flat look somewhere else,” he says.

He urges his clients to lower their expectations. “No one has a God-given right to live in Notting Hill,” he adds.

‘I told a first-time buyer to end her car lease and she cried’

Jane King, an independent broker who has been advising buyers for eighteen years, says she has observed both pragmatism and quixotism in her young clients who are buying their first home.

“They say they can’t save any money and then they are losing four or five hundred pounds a month on stuff that isn’t essential.

“On the other side of the coin I see people who have their main job, their second job, they have the cheapest, crappiest flats you could imagine and they save and save and save.”

She adds hardcore savers prove that buying a first home “can be done”.

But many first-time buyers skip out on the biggest savings by relying on the Bank of Mum and Dad, she says, with one client once coming close to tears when asked to give up a brand-new Mini.

“I said ‘maybe it might be worth getting a little second-hand run around and putting the four hundred pound in the bank’”.

Ms King says she told her client: “I think you do that or you can’t afford to buy this flat”. She adds the client was “absolutely horrified” to hear the advice and that her parents agreed to take on the cost of the car.

Last year, 170,000 first-time buyers had help from family to get a mortgage, according to estate agents Savills. Ms King said that almost all of her clients receive family support, saying about 85pc of first-time buyers are assisted by parents or grandparents with gifted deposits.

In her view, some young first-time buyers are turning their nose up at common sense savings out of laziness. She says making food and drink at home, rather than spending money on cafes, restaurants and takeaways, is a key saving that is too often not being made.

She questions why some clients spending over a hundred pounds each month on Deliveroo “can’t be bothered to put the oven on and stick the pizza in it” and suggests “maybe just out for a coffee at the weekend and make your own the rest of the week”.

She adds a lot of first-time buyers she sees are “well paid” and “can afford” to spend on luxuries. She recommends they adopt “stealth saving” through spend and save schemes on some debit cards like Revolut and Monzo, which roundup payments to the nearest £1 and put the money in a separate account.

‘Sacrifices must be made’  

Jiten Varsani, of mortgage advisers London Financial Services Limited, says: “I see a mixture of strategies among first-time buyers who are looking to save for their home.

“Some adopt a militant approach, scrutinising every penny spent to cut back and maximise savings, while others have a more relaxed ‘hit and hope’ attitude.

“The problem with the latter is that it pushes the goal of owning a home further into the future.

“In a world of social media, it’s easy to get carried away with multiple luxury holidays, fine dining, expensive car financing, and so on, but none of these will help achieve home ownership.”

He adds “some sacrifices must be made” and that he advises his clients to “make small changes” and “gradually build upon them over time.”

Once a savings pot has been built up, Mr Varsani would encourage first-time buyers and those saving for a deposit to take advantage of high interest rates. Currently, SmartSave offers a one-year fixed bond at 5.76pc, Investec 5.68pc, Al Rayan 5.46pc and Zopa 5.38pc.

“Choose where to save carefully, look for high-interest accounts, and maximise tax efficiency where applicable,” he says.