Homeownership in your mid-20s is no idle pipedream. Despite a sometimes bleak forecast and the fact that first-time buyers have undoubtedly been hit hard by the impact of COVID-19, owning a home by 25 can be a reality.
Let’s take a look at how it’s done.
Current challenges of buying your first home in your 20s
So, just what is it that prospective homeowners are up against?
Difficulties securing a mortgage
Due to the impact of coronavirus on property, the pandemic and subsequent lockdowns saw many banks withdrawing their ‘riskier’ loans (e.g. 90-95% LTV mortgages). LTV meaning ‘loan to value’ ratio, with buyers needing only a 5-10% deposit.
With no property to sell to fund the purchase of a new home, many would-be first-time buyers relied on borrowing 95% of the purchase price from their mortgage lender.
As a result, it’s little wonder that low deposit mortgage sales fell by a third in 2020 compared to the year before.
Loss of advantage
The stamp duty holiday was introduced to inject some life back into the housing market, and indeed the economy, due to a perceived lull caused by the pandemic.
In 2020, the annual rate of house price growth was 4.3%. The average house price now sits at £223,700. While it’s unlikely the holiday was the sole reason for this, it most definitely played a part.
However, first-time buyers don’t pay stamp duty on properties under £300,000 anyway. This meant they lost their advantage during a time where competition in the property market was heating up.
Higher house prices
October 2020 saw UK house price growth at its highest level since October 2016, according to ONS data. It was this month that they peaked, with the average price sitting at £245,000. While there are cheaper places to buy a house in the UK, it shows that the property market is a hot one.
Of course, house prices are even higher in areas such as London, which stood at £644,631 in February 2021.
Difficulties saving for a deposit
Saving for a deposit and getting on the property ladder is tough at the best of times. Those looking to buy a home are recommended to save as high a deposit as possible, e.g. 20%. This can often help secure more manageable monthly payments, with lower interest rates.
However, with rising house prices, paying rent while trying to save and the difficulties navigating a job market impacted by COVID-19, that can be easier said than done.
If the average property price is £223,700, a 20% deposit is £44,740! This can make homeownership feel out of reach for many.
How to own a home by 25
The above might not paint the best picture for those hoping to get their foot on the ladder. You might well be asking ‘how am I supposed to buy a house?’
However, buying at the age of 25 can be done, here’s some advice:
Save, save and then save a little bit more – it may sound like fairly obvious advice, but there is really no way around the hard work of saving (unless you are lucky enough to win the lottery, of course).
Crucially, putting your every effort into saving means foregoing those everyday little luxuries – which might not seem to cost so very much at the time, but add up as the days, weeks and months go by.
Need help navigating this journey? Download a home buyers’ toolkit to guide you through the process step by step.
Budgeting means knowing where every penny of your income goes – it might mean a slight lifestyle switch. This means opting for the supermarket’s own branded goods and cutting back on takeaway coffees, for example. This small changes soon add up.
But, knowing where your money is going is a certain spur to making the savings you need.
Other sacrifices, such as holidays, clothes, expensive trainers, may well need to be made too.
Have a figure in mind
How much you manage to save depends on your income (or incomes), and how much you can realistically afford to set aside each month. Suppose you’re looking to buy in three years’ time and need to save £20,000, that’s around £417 you need to save each month.
Set yourself a long term goal to work towards.
See where you stand
It helps to get prepared in advance. A mortgage lender will look at your credit report, so check your credit score now. If it’s poor, you’ve got time to improve it. Some tips include:
- Pay your bills on time
- Pay off existing debts
- Pay off any credit card bills every month
- Check for any fraud
Find a partner
It may be no coincidence that more of the reported success stories come from couples rather than single people.
With the advantage of two incomes, of course, you are not only able to save more, but may also demonstrate a higher combined income to any mortgage lender.
While there are some affordable places for buying a house alone, including Bradford and Derby, it will be harder.
Ask the professionals
Talk to an independent financial adviser or a mortgage adviser, for example, for help in managing your finances and putting yourself in a favourable position with potential lenders.
Not all professional help comes free, though, so remember to include in your budget the cost of solicitor and surveyor fees.
Help is available
Don’t forget the government has offered payment assistance for home purchases.
This includes the Help to Buy Equity Loan scheme which allows you to purchase a new build property with a deposit as low as 5%. It’s been helpful to many who have bought a house.
There’s also news that the impact of the pandemic on first-time buyers hasn’t gone unnoticed, with Boris Johnson vowing to turn ‘Generation Rent’ into ‘Generation Buy’, in the form of a 95% mortgage guarantee scheme announced in the spring Budget. This is designed to help those with a small deposit get on the ladder.
Buying your first home by the time you’re 25 depends on a whole host of personal factors. The good news, though, is that there are plenty of examples of people who have defied the apparently dismal statistics and ended up buying their own home in their 20s. It is a reality – you can do it.
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Last Updated: April 26th, 2022