Last week, in part 1, Colchester Baby Boomers £6 Billion+ Windfall Unfair? we explored Louise’s contention that Millennials (people born after ~1985) were suffering at the hands of the older generation in Colchester who had benefited from the cumulative increase in the value of Colchester properties over the last 25 to 30 years. In addition, Louise believes, many of the baby boomer generation enjoyed unbelievably good pensions, leaving the younger generation priced out of the Colchester housing market.
It’s logical the older members of society hold considerably more wealth than the younger generation because wealth is accrued across a lifetime, reaching a peak about the time of retirement. If we are to get out heads around the differing wealth levels between generations we need to compare “apples with apples”. Tracking the wealth held by different generations at the same age would be a good way to do this, i.e. what was actual wealth of a 30-something couple in the 1960’s compared to a 30-something couple in the 1980’s or 2010’s?
Looking back over the last 120 years at various economic studies the growth in wealth from one generation to the next, only happened between 1960 and late 1980’s. Since the 1990’s, wealth has NOT changed much across the generations (in the same age range).
Did Baby Boomers Save More Than Millennials?
No. Over the last decade UK households have saved between 7.5% to 8% of household income compared to between of 6% to 7% in the late 1960’s and 1970’s. This indicates baby boomers haven’t actively been stashing cash into savings accounts down the decades to accumulate wealth. Most of their gains enjoyed by the baby boomer generation were passive bonuses as a result of events beyond their control, for example the unanticipated rises in property value rises and people living longer making final salary pensions more valuable. Basically I’m saying it’s not their fault.
Why Don’t More Millennials Buy Property?
It is assumed that Millennials aren’t buying property in the same numbers as the baby boomer generation did in the past (because most of their wealth came from house price inflation). Millennials have often been described as “Generation Rent“, because they rent instead of buying property because, we widely believe, they can’t afford to buy.
However, when Colchester mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. Although housing affordability (the ratio between average house price and average earnings) in Colchester is at an all-time high it hasn’t changed drastically over the last decade:
- 2008 average house price to average earnings of a single person in Colchester 7.79:1
- 2017 average house price to average earnings of a single person in Colchester 9.6:1
(this means that in 2008, the average house price in Colchester was 7.79 times more than the average person’s salary in Colchester and it has risen to 9.6 in 2017 despite the property boom during 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. This is called 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 bottom line is, for most first time buyers, it’s still cheaper to buy a property, with a 95% mortgage, than it is to rent.
The barrier for Millennials seems to be finding the 5% mortgage deposit rather than paying the monthly mortgage outgoings at the current 95% mortgage rates. Millennials account for 19.4% of the 13,933 households in the Colchester Borough Council area. So, despite the doom and gloom, 33.1% managed to raise the 5% deposit needed to become homeowners.
Nevertheless the majority of Millennials (6,956 Millennial households), in and around Colchester, do still rent from a landlord. They have choice and can either:
- Do what the baby boomers did and go without expensive holidays and nights out for a few years. Millennials are lured by expensive mobile phones, call plans, data packages, broadband contracts, the coffee shop and eating out culture, console games, Spotify, iTunes, Netflix, Amazon Prime, satellite TV packages and many other outgoings where savings can be made and put towards the 5% mortgage deposit.
- Live in a rented accommodation, without the worry or expense of property maintenance, and enjoy life with no intention of buying (Generation Rent).
To summarise Millennials are worse off but most of them could afford to become homeowners if they wanted too. Renting is a lifestyle choice, but they still have a choice. Until larger numbers of Millennials decide to become homeowners the private rental sector will continue to grow. If the tenants and the landlords are both happy is that such a bad thing? Give me ring on 01206 862288 or email firstname.lastname@example.org to discuss any aspect of the Colchester property market or add your comments below.