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Saving to buy a home: is it always the priority?

Housing Savings

Rising property prices and the fear of too high a debt would lead to behavioral changes in households that do not yet own a home. Most of them postpone the purchase of housing until later, save for a longer period and no longer have home ownership as their first priority. This is what emerges from the latest study by the ING group on home loans.

The observation is clear and clear. Saving to become a homeowner is no longer the first priority for households. For 81% of respondents who do not yet have a home, whether in Europe, the United States or Australia, other financial objectives have become more important such as paying the costs of education, raising a family , rent decent and practical accommodation or have enough money for leisure. Travel would notably win a significant share of the vote. If this result is partly explained by the growing importance of leisure in people's daily lives, the drop in airfare prices and new ways of finding accommodation elsewhere than in hotels during the holidays, the main reason of these behavioral changes is due to the real estate market.


A real estate market undergoing metamorphosis

In recent years, this has undergone a profound evolution, which is not without consequences for the morale and attitude of the prospective buyers. The rise in property prices is currently higher than that of wages - 4.2% compared to 3.2% on average in Europe in the second quarter of 2019. The general feeling is that this growth will never stop - almost 90% of Luxembourg residents expect prices to continue to rise over the next twelve months. The interest rates on very low mortgage loans raise fears that they will start to rise again soon. All of which makes most of the people interviewed say that buying their first home is becoming increasingly difficult.

Almost 89% of Luxembourg residents would be discouraged by the high property prices and 74% of them would fear contracting too much debt. According to the financial rating agency Moody's, the amounts of debt necessary to buy a home have indeed increased in recent years. In 2019, it analyzed the accessibility to property in the ten most important cities in Europe   : Amsterdam, Berlin, Dublin, Frankfurt, London, Lisbon, Madrid, Milan, Paris and Rome. According to his calculations, first-time buyers would have to save the equivalent of 15 years of available income to afford housing without resorting to credit, compared to only 12 years for the period 2005-2007 [1] .


Buy more and more later

The fear of contracting too heavy a debt would be such that 38% of the sample (and Luxembourgers) do not think they will ever be able to buy. As for those who are determined to buy, they intend to do so much later, when they have acquired sufficient savings. Thus, 25-34 year olds expect to acquire their first home well beyond 35 years.

However, even if access to property is perceived as increasingly difficult, the majority want to become the owner of their accommodation, including for those who consider that they are not financially capable given the current situation. All ages combined, seven out of ten Europeans - 82% in Luxembourg - think that it is better to be an owner than a tenant. The reasons are not only pecuniary. Many studies have indeed shown that the decision to buy is often due to emotional motivations. Access to property brings feelings of stability, security, freedom and independence.

Should we deduce that more and more households are likely to be frustrated in the future in their desire to have their small family nest even if they change their way of saving?  Not necessarily. Thus, in Luxembourg, the tax system is an incentive, interest rates are still very low and the government is fully aware of its role as a key player in the real estate sector.  


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Keywords: accessibility to property, buy, apartment, save, finance, housing, real estate, ING, tenant, housing, house, real estate market, first-time buyer, price, owner, property, interest rate


[1]European city living gets less affordable , Financial Times, May 30, 2019.