New wealth gap emerges between the old and young

A new generation gap has opened up with the older getting richer and the young poorer, the Bank of England believes.

Rather than the traditional north-south or social class divide, the Bank yesterday revealed the fortunes of young adults and those approaching or reaching middle age are diverging because of house prices.

A report said that while the typical personal wealth of those in their late thirties to sixties doubled between 1995 and 2005, the wealth of the young rose slightly or fell.

The research paper showed the median wealth of someone aged between 18 and 24 stayed resolutely stuck at nil between 1995 and 2005. The median wealth of a 25- to 34-year-old over the decade collapsed from £3,000 to £950.

But those in the age brackets 35 to 44, 45 to 54 and 55 to 64 experienced a surge in their personal wealth because of the rising price of property, which has trebled in a decade.

Those just before retirement age, 55 to 64, saw their wealth almost treble from £50,000 to £149,500. But although older people had even more money than before in real terms, they also had more debt. Many younger people owed less, having been priced out of the property market.

"The growth in debt in recent years has been associated with a substantial change in the distribution of debt as middle-aged households have tended to borrow more, possibly to keep up with rising house prices," said the paper, for the Bank's quarterly report. "Younger households have borrowed less possibly because they have not entered the housing market."

There is rising concern that the exponential growth in house prices is creating a society of property haves and have-nots. In London, the average first time home costs £232,000, 10 times the average salary of about £23,000. Nationally, a first-time buyers' home costs £142,000. Yesterday, Rightmove said the average property in England and Wales jumped by more than £3,000 in March, up £3,300.

For those who have owned their property for decades or even a few years, they will have accrued equity of tens or hundreds of thousands of pounds without necessarily doing a thing.

Many in their fifties and sixties, the "baby boomers" born after the Second World War, are using the money in their properties to finance home improvements, holidays, and foreign holiday homes, further increasing their wealth. For those just starting out, buying a home can be a struggle, or an impossible dream.

"It's inevitable that people on low incomes are going to be the ones priced out," said Fionuala Earley, chief economist of the Nationwide Building Society. "The deposit is probably the biggest factor preventing people getting into the market. As house prices go up, the 5 per cent deposit is going to be more and more money."

'I now have a house, but I haven't got any savings' - Lisa McGrath, young mother

Lisa McGrath lived with her parents for years before she could finally afford a place of her own, aged 31.

Miss McGrath, a paediatric nurse who lives in Kettering, had to scrimp and save to get on to the housing ladder. She worked overtime and weekends at Northampton General Hospital for 18 months to save up a deposit of £5,000. She then borrowed nearly four times her income over the maximum term, 30 years, to buy a £100,000 Edwardian two-bedroom house requiring modernisation.

The £1,700 cash-back she received from her lender, the Norwich and Peterborough Building Society, allowed her to buy furniture. As a homeowner, her basic salary of £20,950 leaves her with £200 to £250 after the mortgage and bills each month to pay for her car and food and living expenses.

"I don't have the luxury of buying clothes. I am not having sleepless nights worrying about it, but I have to be aware of what I am spending."

Miss McGrath, a qualified nanny, spent three years retraining as a medical nurse, during which time she received a small bursary from the Government. She is pleased she bought a property, but felt it was a struggle. "If I hadn't had the career change I could have possibly bought a house sooner and, in retrospect, would have done the career move later. Training for three years with a minimal salary - £500 a month - meant I couldn't have any savings for three years," she said. "I'm not happy with it, but that's life. I now have a house, but I haven't got any savings."

She added: "It annoys me that it took this long. To get the deposit I had to do extra shifts. I didn't want to live with my parents any more - no offence to them."