John Vaughan (Financial Advisor) @ Lucid Living
It seems that in the current climate and for the foreseeable future property ownership will be but a ‘pipe dream’ for the majority of young adults.
The root cause amongst others is the declining credit worthiness. Increasing rents and also the credit squeeze that has seen most lenders move away from offering mortgages at high loan to values (LTV) has meant that more and more young adults are living in their parent’s homes.
According to a report from the Office of National Statistics (ONS) there has been a 20% increase in young adults living with their parents over the last 15 years. The report shows that almost 3 million adults between 20 and 34 still live at home.
Adv Randolph Samuel, CEO of the Credit Foundation of South Africa, said “the housing market has been hugely affected by the credit crunch and economic downturn and first time buyers have been hit the hardest”.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said “lenders are now demanding hefty deposits and therefore this situation is only going to get worse”.
Due to higher university fees and increased unemployment many parents are now also finding themselves funding their children for a lot longer that they were expecting to.
Recent research from Standard Life found that over half of all parents saw it as ‘their duty’ to support their grown up children financially.
However, because of this it seems that now parents are inadvertently placing their adult children at a financial disadvantage by taking out credit on their behalf.
Samuel, warns that by putting credit agreements, mobile phone contracts, credit cards and even mortgages in their own names they are preventing their children from developing a credit record.
As parents help their children out it has now created an estimated 7 million “credit virgins”, which makes it more difficult for them in the future to take out loans or secure mortgages, even if they can afford them.