House prices have been growing rapidly for the past 20 years, meaning the amount required for a deposit has become further and further out of reach. With rent and other costs of living on the rise, many struggle to put money aside to save for a deposit, and 41% don’t expect to get onto the property ladder at all.
With cash interest rates at all-time lows, and house prices continuing to rise, renters leaving their hard won savings in cash are needlessly postponing getting a first step on the property ladder, with house prices growing faster than inflation, interest rates and earnings. 77% of people opening ISAs last year opened Cash ISAs, despite the paltry returns on offer.
The average house price for a first-time buyer in London is £410,000[3], up from £246,000 just five years ago. This would buy a one-bed flat above Broadway Market in a fashionable area of East London, or a two-bed family house in Surbiton, a popular commuter zone. Bricklane.com’s research showed that a couple with £20,000 in savings, putting aside a total of £600 each month, would have to save for 14 years in order to afford either of these properties using a Cash ISA.
However, the same couple could afford a £410k home almost six years sooner by saving with a Property ISA – where their money is invested into a set of funds used to buy properties and returns are based on changes in the properties’ values plus their rental income.
This comes as independent forecasts by PwC project UK property price growth at circa 4% in the coming decade.
Similarly, if an individual with £15,000 putting aside £350 each month wanted to save for a one bed house in City Docklands, South East London, costing £250,000, then they could reduce the time taken to reach their deposit by just under five years. Even if house prices were to grow by only 2% per year over the period, they could still save just over two years.
Simon Heawood, Founder of Bricklane.com, said: “Generation Rent is being doubly hit by rising house prices and low interest rates, meaning cash savings are not getting them any closer to the property ladder. With a big drop in home ownership among millennials and almost five million households in the UK calling their rented property home, now is the time for action.
Young people work hard to put money aside for a deposit, but by saving into Cash ISAs they’re putting their chance of owning a home in even greater jeopardy. We need to get people participating in and benefitting from the residential property market so that everyone can make their savings work harder and get closer to owning a home.”
The findings come as Bricklane.com launches its London product, allowing investors to own a stake in the London property market through its online Property ISA. “
Bricklane.com’s Regional Capitals fund, which owns properties in Leeds, Manchester and Birmingham, launched last September, is set to return just over 8% on an annualised basis after all fees, comfortably outstripping inflation. The fund has attracted a wide range of investors, from renters to experienced investors looking for better returns.
