Millennials Trying To Get On The Real Estate Ladder Got The Worst Deal – Report

According to a think tank, the cost of buying a primary home has risen by around two thirds in almost half a century.

Millennials born in the 1980s got the “rawest deal” of enduring rapid house price hikes and tighter credit terms, though lower interest rates help lower mortgage loan costs, the Resolution Foundation said.

With older generations on the “sharp end” of high interest rates, a typical UK first time buyer would have paid £ 90,000 net interest by the end of their mortgage in 1974, compared to £ 63,000 for a first time buyer. Now research has found.

Interest rates exceeded 10% in the 1970s, 1980s and early 1990s.

But while millennials experienced a more favorable interest rate environment, with the Bank of England‘s policy rate at record lows, they were hit by record house prices as well as tighter lending requirements from banks and building societies.

Taking the various factors together, the report found that the total cost of buying a first-time home increased by about two-thirds, from £ 154,000 in 1974 to £ 254,000 now.

Most of the increase occurred in the years before the financial crisis, with the largest increase in housing costs therefore falling on the Generation X cohort born in the early 1970s, researchers found.

In London, a typical first-time home buyer has to spend more than £ 500,000 over the life of a mortgage to buy their first home – two and a half times what the report said in 1974.

The cost of an equivalent buyer in North East England is £ 150,000 – around 9% more than a typical first-time buyer in the region in 1974.

These differences may make it difficult for young people today to move from one area to another, the report said.

The report, funded by the Nuffield Foundation, says that a typical first-time buyer of the older generation of baby boomers faced high mortgage costs for the first five years of home ownership – a time when they would have been the weakest on property with little equity.

In those early years, a typical purchase in 1974 would have paid approximately £ 31,000 in interest compared to £ 17,000 on a typical purchase today.

But millennials are struggling to even get on the real estate ladder, argued the foundation.

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

While a family born in the early 1970s with typical incomes up to the age of 22 would have saved enough for a first deposit, a family born in 2002 up to 36 would need to save enough for a deposit.

Lindsay Judge, Research Director at the Resolution Foundation said: “The UK property market has long been a source of intergenerational conflict.

“Baby boomers complain about interest rates of over 10% on their first purchase, while record house prices have completely pulled the real estate managers away from many millennials.

“When you put all of the costs involved in first-time home ownership together, the lifetime cost of these properties has increased two-thirds since the 1970s, and millennials have the best offerings of all generations.”

This strong entry barrier explains why the home ownership rate among 30-year-olds has halved in the last 30 years, why typical first-time buyers are richer than in the past and why so many young people today rely on “mum and dad’s bank,” according to the foundation.

The report also found that there can be real financial benefits for those who can move up the real estate ladder. It predicted that young millennials would amass more housing wealth from their first property than the previous generations of homeowners she researched.

Alex Beer, Director of the Nuffield Foundation’s Welfare Program, said, “This important study sheds light on the many factors that affect housing affordability and how they combine to exacerbate inter- and intergenerational inequalities.

“Since the lifetime cost of first-time home ownership is higher for millennials than for any previous generation, policymakers should consider steps they could take to level the playing field.”

A number of lenders recently launched a 5% deposit mortgage under a UK government program.

A spokesman for the Department of Housing, Community and Local Government said, “The government is making it easier and more affordable for people to get up the corporate ladder.

“Whether for young first-time buyers or key workers, there are a number of government programs to help people in a variety of situations, including First Homes, Help to Buy, the 95% Mortgage Guarantee Program, Shared Ownership, and Help to Build.

“To give clear advice about the offers available so that people can decide which option is right for them, we’ve put it all into a single OwnYourHome portal.”