Degrees Of Debt

Fiona Nicolson looks at the struggle many graduates face to get on the property ladder.

You've got your degree, the job you wanted and a decent starting salary.

Now you want to become a homeowner.

Unfortunately that might take a little longer.

A recent report by Scottish Widows Bank has shown an increase this year in the number of graduates who have not yet got onto the property ladder.

The main reason is that they just can't afford it. In fact, some believe home ownership might be as much as ten years away for them. Others even think they will never be able to buy a house at all.

So, why are some graduates taking such a gloomy view of their property prospects?

According to the report, more than half believe they are not earning enough to get themselves onto the property ladder, one in five can't see themselves being able to afford the mortgage payments anyway and about a third are unable to save for a deposit in the first place.

The problem is that property prices and inflation are continuing to rise, but starting salaries aren't keeping pace.

That's not the whole story though: student debt is another issue. The average amount graduates leave with is the considerable sum of £10,361. And according to another recent report, by the Association of Investment Companies, they are underestimating the final total, graduating with around £5000 more debt than they had expected.

You do the math

This means graduates are starting working life already owing a sizeable chunk of money. Which is not a great motivation for taking on another loan. And although paying back the student loan may not seem particularly onerous (a graduate on a salary of £20,000 would be making repayments of around £8.65 per week), it all adds up.

Especially when you consider that the size of the average deposit for a graduate first time buyer is £16,666 or a massive £26,536 for those looking to buy in London. That's a lot of savings to put away, by someone who might not have much income to spare.

And what about those lucky graduates who have already managed to get their foot on the first rung of the property ladder - how are they faring with home ownership?

It seems there could be problems ahead for some. More than 60% chose to buy the property with a partner, but 69% of them would not be able to afford to buy their other half out, if circumstances demanded it - which is clearly far from ideal.

So, what is the answer to these various property dilemmas? The Scottish Widows Bank report uncovers a graduates' wish list, as follows:

• their ideal job in an affordable area
• no deposit requirement
• lenders considering future earning potential rather than current salary

In the meantime, some lenders are offering mortgages with graduate needs in mind, so that owning their own home does not seem such an unrealistic goal.

For example, HSBC will allow graduates to borrow up to 95% of the value of their first property. This deal is available up to five years after graduation. Scottish Widows Bank also provides a 102% mortgage, specifically for graduates, to give them a bit of leeway to pay for solicitors, removal costs and so on.

There will still be some graduates who are unable to commit to home ownership for the moment. But those who are may find it's not as impossible as they once thought.

> Compare Mortgages
> Your Easy Guide To Mortgages