Home ownership ‘cause of inter-generational strife’ - claim

The distribution of home ownership across different generations has been a cause of strife according to a think-tank.

The Resolution Foundation’s latest report says the costs of buying a typical first-time property with a mortgage have risen by two-thirds over the past half-century, with those born in the late 1980s experiencing the highest costs of all, as falling interest payments have failed to offset rapidly rising house prices. 

The report notes that although typical first-time buyers from the baby boomer generation were hard-hit by sky high interest rates, young people today have to contend with higher house prices than previous generations, as well as tighter credit conditions than in the 2000s.

The report claims that with interest rates staying above 10 per cent throughout the 1970s, 1980s and early 1990s, FTBs paid a significant amount of interest on their first-time property during this period.

The typical FTB in 1974 would have paid £90,000 in net interest by the end of their mortgage, compared to £63,000 for an FTB today, with those buying before the financial crisis also experiencing high costs of over £80,000.

But while millennials today have experienced a favourable interest rate environment, they have been hit instead by record house prices and tighter lending requirements on the part of banks and building societies. 

The deposit required to get onto the property ladder has tripled in real terms over the past 20 years, from just shy of £11,000 in 2000, to £33,000 in 2020.

And the report shows that the total cost of buying a first-time property outright has increased by two-thirds over the past half-century, from £154,000 back in 1974 to £254,000 today.

It adds that the vast majority of this increase occurred in the years running up to the financial crisis (from £140,000 in 2000, to just under £250,000 in 2007).

The Foundation says that millennials today are struggling to get onto the property ladder in the first place. 

While a family headed by someone born in the early 1970s, with typical family income levels, would have saved enough for a first-time deposit by the age of 22, it will take a family headed by someone born in 2002 up to their 36th birthday to save enough for a deposit.

Finally, the report notes that while the cost barriers to first-time property ownership are greater today than ever before, the benefits of home-ownership are also greater than ever. Young millennials are set to accrue more housing wealth in the form of their first property (£300,000) than any previous cohort of homeowners.

The foundation’s research director, Lindsay Judge, says: “The UK property market has long been a source of intergenerational strife. Baby boomers lament the 10 per cent-plus interest rates when they first bought, while record house prices have pulled the property ladder away completely from many millennials.

“When you bring together all the costs associated with first-time home ownership, the lifetime costs of those properties have increased by two-thirds since the 1970s, and millennials have got the rawest deal of any generation.

“The good news for first-time buyers today is that they are set to accrue more property wealth from their first home than any previous generation. But that makes it all the more frustrating that for many young families without access to the Bank of Mum and Dad, home ownership is simply out of reach.”