‘My property dreams are slipping further away each day’- are rising mortgage interest rates disproportionately affecting young women?

Please note: This feature was written in December 2022.

Image: Unsplash.com

I am an undergraduate student who’s had a specific dream for a very long time- to get on the property ladder with my first mortgage aged 23.

However, for many first time buyers across the UK, rising mortgage interest rates mean that dream is being pushed further and further away each day, currently with no signs of stopping. Constant news bulletins about falling house prices and rising mortgages have created an atmosphere of hopelessness in prospective homeowners, especially young women who may already feel financially disadvantaged in the market due to the Gender Pay Gap, which currently stands at 8.3% according to Office for National Statistics. All this increases the mammoth amount of time needed to save up that 15% deposit, which already takes the average single first time buyer 10 years.

Average 5 year fixed mortgage interest rates are about 5%, despite the average house price dropping 1.4% to £263, 788 in November 2022 according to Nationwide’s house price index.

Rising mortgage interest rates have created an elitist economy wherein buyers must start with money to get on that upward ladder- but what about those of us who don’t have that privilege?

The harsh reality for first time buyers:

According to a 2022 study by King’s College London, 52% Baby Boomer respondents agreed a key reason more young adults cannot afford to buy their own home is they spend too much on takeaway coffees and food, mobile phones, subscription services and holidays abroad. This is an inaccurate mindset that needs to be changed: the idea that it is the fault of today’s young people that we cannot afford to buy homes. The economic crisis we are currently living through was not caused by us, yet we will be the ones to suffer the long- term repercussions of years of government negligence regarding the housing market.

Some of today’s first time buyers are extremely lucky to receive inheritance or other monetary gifts from their families in order to help them buy their first home. This is often the case with many young buyers, and of course there is nothing inherently wrong with this. Being in a position to have help is not an easy one to turn down, especially since so many people need it right now. The issue is with those first- time buyers who choose to mask this immense privilege with a self- righteous, ‘did it by myself at 22’ attitude, when in fact the majority of their deposit was gifted to them in some way. This is disingenuous and disheartening for other savers to hear- it is important to recognise that not everyone has been lucky enough to have that start in life.

This is the reality experienced by thousands of young people who feel they have been left to struggle on their own amidst the cost of living crisis. Those unlucky few who are not part of the 56% under 35’s who received a financial gift to help them onto the property ladder. Many feel that just as they have managed to save enough for a home in one area, mortgage prices go up again, pushing them right back to where they started. It’s a relentless cycle of prices rise: save more, never quite reaching the end goal.

This was the case for 23- year old Matthew, an engineer from Swindon. As a result of Covid- 19, deposit requirements skyrocketed, meaning suddenly he could only afford a deposit for a flat thanks to a gift from a family member. He was keen to get on the property ladder as soon as possible, explaining “independence was a big thing for me personally. And if I had rented, I would have been trapped in that cycle of never being able to save for a deposit- I didn’t want to throw all my money away on rent. You can never get up that ladder if you don’t start early.”

“I’m obviously worried. At the moment I’ve got a fixed rate, but when that comes to an end in 3 years time I’m very concerned about what the market will be like: if interest rates keep going up it will seriously impact my life- I would have to sell my car.”

I also spoke to Becky, a 22- year old trainee solicitor who recently bought her first flat with her boyfriend. Whilst she didn’t personally feel disadvantaged as a female first time buyer, this may have been because she was not buying alone- women need over 12 times their annual salaries to be able to buy a home in England, while men need just over eight times. “We were able to to use the Help to Buy scheme and luckily I had some inheritance money to use for a deposit. However we still had to really cut down on spending to make our accounts look healthy to the mortgage company.”

The Help to Buy ISA and Equity Loan schemes were one of many alternative methods used by recent first time buyers looking to take out a mortgage in uncertain times of rising interest rates. These schemes have been very popular with young people purchasing new builds according to Dawn Richens, Director at David Richings Estate Agents. However, both of these schemes have since been or will soon be phased out by the government for a multitude of reasons in favour of The Lifetime ISA, which offers savers a 25% boost to savings of up to £4000 per tax year.

Regarding the future of mortgage rates, Becky added “its concerning both for first time buyers and repeat buyers. It’s important for everyone to be able to access the housing market, to push for a more independent society. It’s particularly important for young women, especially those with children, to be able to get on the housing ladder.” Regrettably, her previous plans to buy a house have had to be put on hold due to rising interest rates and house prices, despite being in a relatively secure financial position. If this is the situation for people like Becky, imagine the immense stress others with less stability are experiencing. The worrying would consume your life.

What do the experts say?

Dawn Richens, Director of David Richings Estate Agents, is concerned about the future of rising mortgage interest rates and what it could mean for young people trying to start out. “Whilst the offers have come down fractionally from what they were a few weeks ago, it’s a hard one to predict. Our financial advisor thinks [mortgage interest rates] may go up slightly. The key thing for people to remember is affordability, because rather than focusing so much on income, the lenders do affordability checks. Of course with the cost of living increasing, it takes a big chunk out of what buyers have to put towards a mortgage.” The suggestion of affordability being at the forefront of the crisis was also echoed by Nationwide’s Chief Economist Robert Gardener, who told BBC’s Today program “the fallout of the mini- budget and the big rise that we saw in mortgage rates really did change the affordability calculations for prospective buyers.”

Dr Teng Ge, Senior Lecturer in Economics at Oxford Brookes Business School, predicts that tracked mortgage interest rates will continue to increase in the near future. “We are definitely not seeing the trend that it is going down. Just today, the Bank of England raised the base rate to 3.5%. I would expect an increase until we see the peak” he said. “The next 2-3 years will be determined by how the market sees the recession: if less people borrow, demand for mortgages is lowered, therefore lower interest rates. There is a higher risk that we could still see them increase in the coming recession. Something that is certain is that demand for borrowing has dropped: that’s happening now. The next 5-10 years will be determined by supply and demand.”

There is a new level of difficulty added for female first time buyers due to existing societal barriers. According to Dawn Richens, it is currently very tricky for young women to take out their first mortgage, especially if trying to achieve this alone. “As a woman on her own, especially in [West Oxfordshire], it’s very tricky. Even the smallest of properties, such as a studio flat, are £120,000. You’d need to be earning £35,000- £40,000 to be able to comfortably go for something like that.” In the West Oxfordshire region, women’s incomes fall over 50% short when buying a house with a typical mortgage, according to a 2019 report. Clearly the issue is not fading any time soon.

“Without Help to Buy or inheritance money, it’s very difficult. Of course, once you’ve left home and are perhaps renting, you don’t have any spare money to put aside to even start saving a deposit, so it really is a Catch- 22 for young people.”

Dr Teng was more hopeful about the future for young women. He explained that the trend for the Gender Pay gap is shrinking, with the United Kingdom displaying much more promising statistics than the United States of America, yet falling behind in comparison to other European countries such as Norway. As a result, there should be an increasing number of independent female buyers as the economy pushes towards gender equality- a group that I personally hope to someday soon be a part of.

What will the future be like for the next generation of buyers?

So, what could the future hold for female first- time buyers? There may be some slight relief.

According to Rachel Springall, finance expert at financial data provider Moneyfacts, fixed mortgage rates are starting to fall and the number of offers available are beginning to increase again. However, despite the rates being slightly reduced from November’s skyrocketing prices, they are still unaffordable for most young women.

Ellie, a 21- year old student from Oxford, described her despair when asked how soon she expects to be able to afford her first mortgage. “I would estimate between 5-7 years if I’m being realistic. I’m mostly just worried because the places where I would like to live, such as London, are more expensive- even to find a place outside or around London I think would be quite difficult.” Her fears are not misplaced- in 2021, the average first-time buyer deposit in the UK was about £53,935, but in Greater London the deposit amount was more than double this figure.

There are Government schemes set up to help people like Ellie fast track the gruelling process of saving for a deposit, such as the Lifetime ISA scheme, which gives buyers a £1000 bonus every tax year providing they save £4000 in the account. However, in order to achieve this, many young people will have no choice but to stay at home much longer than anticipated, meaning those in their 20s will miss out on that crucial aspect of independence and personal development that comes with living alone. For Ellie, this was non- negotiable: “I don’t want to be living at home whilst saving up for my mortgage. The reason why it will take me so long is because I’ll be paying rent somewhere else and trying to save at the same time. It means I’ll be on a tight budget for about 5-7 years. I’ll be almost 30- that’s scary!”

When asked if she was hopeful about the situation improving in the future, Ellie simply stated “absolutely not. Not hopeful at all.” What a summary of the country’s general sentiments right now.

Similarly, 19- year old RAF driver Theo is very worried about one day affording a mortgage. “On my own, I’m looking at 7- 8 years, if I’m sensible and manage to put away a good amount of money each month. It’s not only the massive deposit you’ve got to put down now, it’s the monthly payments being so high- even the best jobs aren’t paying enough to buy at the moment.”

However, Theo does have a more positive outlook on the future, putting faith in existing government schemes and having family members who have successfully combatted rising interest rates. “I’m hopeful about the future. I’m hopeful they will come down, but realistically I think they will continue rising and eventually stabilise. If the government care enough, they’ll do something about it.”

The question is: how do we highlight this issue to the forefront of government debate amidst every other economic crisis currently unfolding at the moment?

Overall, the impact of rising mortgage interest rates in fact appears to be less gender- biased against young women, with the issues faced by young people as a whole instead highlighting how existing wealth divides within the country act as the main barrier to getting started on the property ladder. For decades, breaking into the housing market has been extremely difficult- the cost of living crisis has merely exaggerated the speed that the dream is pulled from our grasp. The future of mortgage interest rates is very difficult to predict and understandably many young women, including myself, will remain worried about the process becoming such a difficult one financially.

Names have been changed for privacy reasons.

Keywords: Cost of living, Mortgages, interest rates, first time buyer, government