Following the release of a Halifax survey recently, experts are predicting the UK is moving away from home ownership being the default status of people in their thirties, towards a reality where only a very small fraction of this demographic is ever going to own their own home. The survey showed that only 5% of people 20-45 – the so-called Generation Rent – are making spending sacrifices right now in order to get on the housing ladder, while the remaining 95% have no spare cash to save, no incentive to save, or are failing to save despite trying. Based on these figures Halifax expects the UK to become overwhelmingly a nation of renters within the next 20 years.
This survey neither shocks nor even surprises me. With the average age of first time buyers now reaching the ripe old age of 37; the cost of university tuition fees rising, and the job prospects of young graduates looking as bleak as ever, why would anyone be thinking of buying a home?
In some ways I think this is a good thing, and is something that has needed to right itself for some time. Only a decade ago people as young as 22 were stretching themselves to get onto the property ladder, many of them with help from mum and dad, because it was an accepted given that home ownership was the holy grail. Why a 22 year old needs the financial stress, lack of job location flexibility and general tied-down reality that comes with owning a home, I was never quite sure. I think that 37 is, to be honest, a much more appropriate age for people to begin the home ownership process, because at that time in your life you are much more likely to have stable finances, a stable relationship and less requirement to be footloose and fancy free.
That said, the fact that many young people have no choice to be anything but a long-term renter in the current market is a problem. There is virtually no incentive to save with current interest rates being as low as they are; graduates are now doomed to spend the decade following university paying off substantial tuition debts, and there is nothing stopping the Baby Boomer generation – probably the luckiest generation of all time – sitting around and snapping up reasonably priced property so that they few people in the position to buy their first home are priced out of the market.
I think it’s important for the government to get behind first time buyers, possibly by making it very expensive for existing homeowners to buy up second and third homes. I also think that no matter what happens, the reality is that fewer and fewer people will probably make the leap over the next few years which does mean that there is a generation of people who will miss out on ever being homeowners; and for that reason, the government has to have a good hard look at the private rental market and do more to protect renters so that young people can live in urban areas at reasonable prices and be protected from the whims of their landlords.
Are you part of Generation Rent? What would you like happen to change this?
When it comes to buying vs. renting, I’m a firm believer in doing the maths. I bought my house when I was 25. You’d be forgiven for calling me crazy as I agree that I’m kind of trapping myself in terms of mobility. However, I got my house at a good price as I bought it from my parents. I have decent job prospects and have a nice rate on my mortgage. Not only that but I have a lodger (a close friend) who is basically paying my mortgage for me. I will put my house on the market as soon as it will have positive effects on both my finances and personal life but until then, I will regard buying a house in 2009 at the age of 25 as one of the smartest things I’ve ever done…not one of the most interesting or exciting, but definitely the smartest.
I’m not fundamentally against renting. I just follow the numbers. If it made sense for me to rent, I would…but I’d still make sure I was stockpiling investments while doing so.
Too many people blame the economy for their problems. I personally think that if low interest rates are enough to dissuade someone from accumulating wealth, then that person has bigger problems than ‘the economy’.
Renting is the norm throughout much of Europe, and indeed in other parts of the world. It has many advantages, especially that of flexibility. However, I feel that all rented property should be in the hands of local authorities or housing associations, as the buy-to-let market is one of the main reasons why property prices are so ridiculously high. So I see nothing wrong with renting as such, only with the way it operates in this country.
There is a popular misconception amongst some in this country that all baby-boomers are wealthy and own two or three houses. As one of them I can assure you that this is not the case. I don’t own my home, let alone any other houses. I did buy a house once, but lost it when my business failed in the 1980s. I have never been able to get back on the ladder, and never will. Consequently, none of my grown-up children own their homes, and probably never will, nor most likely, will any of my 6 grandchildren.
Second (and third) homes are a blight on our society, and are the other reason why our young people are finding it so hard to get on the property ladder or to find anywhere with a reasonable rent. They often ruin villages because they drive out all the local youngsters, and lead to the closing down of local businesses such as shops and pubs, who cannot survive when most of the houses in the village are only occupied for part of the year.
I would like to see all incomes from private rentals taxed at 50% or more, and all properties not occupied by their owners for at least 9 months of the year, liable to treble-rate council tax payable by the owner, not the tenant. Housing associations run on a not-for-profit basis would of course be exempt from this. I would also like to see all private rents capped by the local authority, to a level no higher than what they would charge for a similar property.
Well said. Allowing low interest rates to be a disincentive is a poor reason not to save. Almost everyone can buy a property (maybe not in a prime position) but people just refuse to sacrifice and refuse to sacrifice their lifestyle. For most, it’s easier to whinge and complain than to actually make an effort. Unless they work in retail, are casual or part time because it’s significantly harder for those with irregular income to get mortgage finance.
The problem with a lot of renters is that they burn through the funds they believe they have ‘saved’ by not having a mortgage and are worse off than if they had a mortgage in the first place.
Also, why should the govt heavily tax those acquiring multiple properties? It’s a bit contradictory to tell the population that they must save & invest for their own retirement and then on the other hand, go and tax them heavily for trying to fund their own retirement. It will be a disincentive and burden the social welfare system which will probably have no money anyway due to the aging population.
Rents go up with inflation but your mortgage payments will be roughly the same in 25 years. If you make additional repayments against the principle then you can pay your mortgage off within 2-5 years instead of the 25 or 30y that we are led to believe is the norm.
smart money @ http://smartmoneyguide.blogspot.com