Housing represents one of the biggest personal expenses in most people’s budgets. Whether leased or owned, rent and mortgage payments eat up a substantial slice of UK income. Owning a home nonetheless remains a financial goal for many earners, intent on reaching this long-held milestone, marking monetary stability. But is generation Y motivated by the same housing goals as other generations?
Millennials are often held-out as a unique generation, unencumbered by some of the material concerns shared by older groups. In fact, their lack of preoccupation with money is unnerving to some observers, labeling Generation Y as lazy and uninspired. Generalisations aside, Millennials are currently more likely to rent than buy a house, departing somewhat from traditional housing values. Is the difference a result of their unique take on life? Or are Millennials up-against unique housing challenges, preventing them from joining the ranks of home owners?
Hard to Save
Expenses facing young people make it difficult for them to set by money for a house deposit. According to one recent analysis, Scotland university graduates make an annual salary of about £27,500 three and one-half years after graduation. The reasonable salary may be enough to cover basic costs, but in practice, there is little left for savings. As the cost of living continues rising, rent payments strike a large share of Millennials’ earnings, and once other bills are paid, saving for a house deposit falls by the wayside.
One remedy lifting some would-be buyers into the market is the bank of mum and dad. Unable to amass a 10 per cent deposit (now a sizable sum for an average UK house) Millennials instead turn to family members for help breaking into the housing market. With house prices holding at a high level, and a lack of affordable alternatives across the UK, borrowing from the family bank has become a standard practice for those lucky enough to have the option. In some cases, young couples most borrow from both sets of parents, just to get on the property ladder.
Change of Direction
Members of prior generations looked forward to home ownership, realising the financial benefits of buying a home. Over time, many conducted home improvements, adding to the value of their most significant investments. While many members of past generations were able to climb on the property ladder in their early twenties, the same age group now views home ownership as a distant (if at all possible) dream.
Another unique trend preying on the UK housing market is owners’ increased tendency to stay put, rather than move house. Britons are recently much less likely to change address than home owners in other countries. The UK transaction rate this year is likely to be the lowest seen since 2013, showing Brits are buying and selling homes at a particularly slow rate. Brexit and other financial uncertainty are held out as possible causes, but the stagnation is also colored by personal factors. Although strong employment and low interest rates provide stimulus for the housing market, high house prices and dragging wage growth illicit caution among would-be buyers and sellers.
Until homes change hands more frequently and prices dip, generation Y may be confined to the sidelines, unable to compete in a tight, expensive housing market.
Some London Millennials have found a workaround for prohibitive house pricing, getting some of the same benefits of ownership, without the price tag. Taking a collective approach in London microflats, residents get some privacy, but also share communal space. The units are a few hundred square feet in size, perfectly accommodating young single residents that want their own space, without the cost and commitment of owning a house.
Millennials faced with high house prices and stagnant wages are more likely to rent than buy a house in the current market. Those who do make the leap, usually do so with the help of parents and family members, willing to help fund a deposit. Until conditions ease, Millennials will remain the rent generation, with vanishing hopes of following a proud tradition of home ownership.