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More than a third of property wealth is with the over-65s. Photograph: Cultura RM/Mother Image/Getty Images/Cultura RM
More than a third of property wealth is with the over-65s. Photograph: Cultura RM/Mother Image/Getty Images/Cultura RM

Homeownership: the generation that had it so good

This article is more than 8 years old

Dramatic increases in house prices have locked out younger buyers. Does the baby boomer generation now enjoy an unfair level of property wealth?

Life has changed a lot since fledgling homeowners took their first steps on the property ladder in 1969. Back then, the average first home cost £4,000, according to data from the Office for National Statistics – and you would typically have been able to buy it at the tender age of 25.

Not any more. Now just 8% of 25-year-olds make it on to the property ladder, the Council of Mortgage Lenders says. The average price of a first home has increased by 5,225% over the past 46 years, to £209,000. This has massively outpaced the incomes of first-time buyers, which have grown at less than half that rate. Shelter estimates that today’s first-time buyers spend 30% to 40% more to buy their first home today than they would have done in 1969.

“If you were able to buy your first home before prices started rocketing, you have received massive unearned wealth gains – but only at the expense of the generation who are now locked out of ownership, and stuck paying the highest rents in Europe,” says Duncan Stott, director of the affordable housing campaign PricedOut. “Buying today requires your income to be in the top 20% of earnings and a willingness to take out unprecedented levels of mortgage debt.”

What has driven these dramatic changes in home ownership – and will any other generation ever have it as good again?

Something to call your own

By 1971, growth in homeownership meant that an equal number of people rented as owned their homes – but by 1981 the number of owner-occupiers had risen to 58%, according to the ONS.

At around that time Margaret Thatcher launched the Right To Buy scheme, enabling council house tenants to buy their own homes. The legislation was passed in 1980 and was a response to a rise in incomes, argues Professor Colin Jones at Heriot-Watt University’s School of The Built Environment: “Rising incomes meant that more people were demanding home ownership and so some sort of scheme was inevitable. There was also none of the supply-side problem we have today, so councils felt perfectly comfortable selling off the stock.”

Supply was so abundant that, even adjusting for general inflation, properties were mostly selling at less than their rebuilding cost, says Angus Hanton, co-founder of the Intergenerational Foundation. Buying a home was also more affordable because, he says, “mortgage interest relief meant that interest payments on mortgages were tax-advantaged – buyers effectively paid their mortgage out of pre-tax income.”

Old money

More than a third of property wealth in the UK is now owned by households where at least one occupant is 65 or older, and nearly one in 10 (9%) of 55- to 64-year-olds live in households with net property wealth of £500,000 or more; the highest of any age group, says the ONS.

This trend shows no sign of abating and house prices are continuing to rise, with the typical pensioner’s home increasing by an average of £900 a month this year, a report by Key Retirement shows.

Already, 28% of those aged 22 to 30 years of age have been forced to remain at their family home, or move back. Statistics from the Chartered Institute of Housing (CHS) show that home ownership among 25- to 34-year-olds has plummeted from 67% in 1991 to 26% in 2013while ownership among those aged 65 to 74 has increased from 62% to 77%. In 1981 this figure stood at just 49%.

A recent report from the Intermediary Mortgage Lenders Association accused baby boomers of “hoarding” large family homes, contributing to an inertia in the market that keeps aspiring buyers off the property ladder. Meanwhile the CHS warned of a “perfect storm” where older, already privileged homeowners buy and rent homes to those priced out of ownership.

However, not everyone believes new buyers are in that much trouble today. “With so much governmental support being provided for those wanting to step on the property ladder, it can hardly be claimed that this generation have it any worse,” says David Ingram, founder of MyLocalMortgage.co.uk.

Offering a helping hand

Many people in the baby boomer generation will struggle to recognise themselves in this description of an asset-rich, privileged few. A sizeable number of retirees shoulder financial responsibility for both their adult children and elderly parents, says Emma Myers, spokeswoman for Saga Legal Services. “Aside from the time and emotional costs of this, the financial costs can escalate rapidly.”

Research from the Equity Release Council (ERC) shows that the over-55s contributed around £26.7bn in support to children and grandchildren last year. Helping with a house purchase was the most common reason for financial assistance, with retirees stumping up an average of £14,065.

Research by Prudential found that 41% of over-55s plan to sell their current home, with around 2.5 million of those planning to downsize. The average amount of cash these last-time buyers hope to free up is £87,600 and many will feel pressure to use at least some of that money to help their adult children.

However, many of those approaching pensionable age are not selling their homes to help their children onto the property ladder, but to fund their own retirement. Research from LV= showed that 52% of people aged 60 and over are considering freeing up money from their properties to pay for retirement, which spokesman Richard Rowney says is down to “small pension pots, a lack of retirement savings, and the continuous rise in house prices”.

But while this may get recent retirees out of the red, when downsizers sell to younger families, these buyers burden themselves with record levels of mortgage debt, says David Kingman, researcher at the Intergenerational Foundation. “Young families [are] effectively subsidising or wholly funding the retirements of the downsizers.”

Meanwhile, young people who do not earn enough to afford a large mortgage are caught in a downward spiral of debt. “Income inequality is the real underlying problem for buyers today,” says Danny Dorling, professor of geography at the University of Oxford. “People can’t save for a deposit so they are forced to rent, but rents are so high they can’t ever afford to save. Rich property investors are simply rubbing their hands with glee.”

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