Well last week’s article “The Unfairness of the Loughborough Baby Boomer’s £2,902,360,000 windfall?” caused a stir. In it we looked at the case that Millennials (those born after 1985) were suffering on the back of the older generation in Loughborough. They claimed the older generation had seen the benefit of the cumulative value of Loughborough properties significantly increasing over the last 25/30 years (which I calculated at £2.90bn since 1990). In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the Loughborough housing market.
I replied there should be no surprise though that the
older members of our society hold considerably more of our country’s wealth
than the younger generation. This wealth is accrued and saved across
someone’s life, and reaches it’s peak about the time of retirement. If we are
to comprehend differing wealth levels between generations we need to compare
‘apples with apples’. It is much more important to track the wealth held by
different generations at the same age, i.e. what was ‘real’ wealth of the 30-something
couple in the 1960’s compared to a 30-something couple say in the 1980’s or
2010’s?
Looking back over the last 120
years at various economic studies, this growth in wealth from one generation to
the next (at the age range), only happened over a 30 year period of between
1960 and late 1980’s. Since the 1990’s, wealth has not improved across the
generations, in the same age range.
So could it
be all about these people saving? The fact is, in the last 10 years, UK
households have saved on average 7.5% to 8% of the household income into
savings accounts, compared to an average of 6% to 7% in the late 1960’s and 1970’s.
The baby boomers haven’t been actively squirreling away their cash for the last
30 or 40 years in savings accounts to accumulate their wealth. Most of their
gains have been passive, lucky bonuses gained on the back of things out of
their control (unanticipated and massive property value rises or people living
longer making final salary pensions more valuable) – it’s not their fault!
...and herein
lies the issue … it is assumed that these Millennials aren’t buying property in
the same numbers like the older generation did in the past (because most of their
wealth has come from house price inflation). The Millennials have often been
described as ‘Generation Rent’, because they rent as opposed to buying property
– because we are told they cant buy.
However, when Loughborough mortgage payments are
measured against monthly income, home ownership is affordable by historic
standards because mortgage rates are currently so low. As you can see, the
ratio of average house price to average earnings in Loughborough hasn’t vastly
changed over the last decade …
·
2008 average house price to average earnings of a
single person in Loughborough 6.15 to 1
·
2017 average house price to average earnings of a
single person in Loughborough 6.61 to 1
(i.e. in 2008, the average house price in Loughborough
was 6.15 times more than the average person’s salary in Loughborough and this has
only risen to 6.61 in 2017 – and all this off the property boom of the early
2010’s)
95% first-time buyer mortgages were reintroduced in
2010. The average interest rate charged for those 95% FTB mortgages has slowly
dropped from around 5.5% in 2009 to the current 4% rate. Back in the 1980’s/1990’s
mortgage interest rates were between 8% and 10%, and one time in the early
1990’s, reached 15%! The main difference between the two periods was the absolute
borrowing relative to income is greater now than in the 1980’s. They call this
the ‘mortgage to joint household income ratio’. In the 1980’s the mortgage was
between 1.8x to 2x joint income; today it is 3.4x to 3.6x salary.
The simple fact is, in the majority of cases, it is
still cheaper for a first-time buyer to buy a property with a 95% mortgage, than
it is rent it. The barrier for these Millennials, has to be finding the 5%
mortgage deposit – instead of being able to afford monthly mortgage outgoings
at the current 95% mortgage rates?
Millennials
make up 11,501 households in the Charnwood Borough Council area (or 17.2% of
all households in the area). However,
behind the doom and gloom, surprisingly, 40.2% did save up the 5% deposit and
do in fact own their own home (that surprised you didn’t it!)
Nonetheless, the majority of Millennials
in the area still do rent from a landlord (5,167 Millennial households to be
exact). Yet, they have a choice. Buckle down and do what their parents did and
go without the nice things in life for a couple of years (i.e. the holidays, out on the town two times a week, the annual
upgraded mobile phones, the £100 a month Satellite packages) and
save for a 5% mortgage deposit ... or live in a lovely rented house or
apartment (because they are nowadays), without any maintenance bills and live a
life with no intention of buying - because renting doesn’t have a stigma anymore
like it did in the 1960’s/70’s (secretly
hoping their parents don’t spend all their inheritance so they can buy a
property later in life – like they do in central Europe).
Neither decision is right or wrong – although it is
still a choice. Until Millennials decide to change their choices – that is the
reason why the country’s private rental sector will continue to grow for the
next 30 years – meaning happy tenants and happy landlords.
If you would like to discuss the Loughborough property market or chat about any potential investment please feel free to call us on 01509 260777 or email me james.loughborough@belvoir.co.uk
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