No place like home: the generation who can't afford to buy
The average age of the first-time buyer is now 38 - and the typical deposit on a property is more than half the average income. Tim Walker finds out how his generation got priced out of the market
Tuesday 16 March 2010
My parents bought the house I grew up in at the end of summer 1980, three months before I was born. It was a semi-detached in a Surrey village, with three bedrooms and a big garden, and it cost them just £32,000. Half of the rooms were a converted former Wesleyan chapel; Mum remembers that when she saw the original ecclesiastical windows she had one of those TV property-show moments – this, of course, was before TV property shows actually existed – and was gripped instantly by the desire to make the place her own.
Dad tells it slightly differently: they'd seen a lot of houses, he says, "and this was the one that had the least wrong with it". Even so, there was plenty that needed fixing. They invited their friends over for DIY parties and re-fitted the bathroom, then the kitchen; they re-floored, re-wired, re-plumbed, re-plastered and re-roofed, all with a newborn baby (a delightful one, mind) learning to suck his thumb in the background.
The house was in the already desirable commuter belt, close to Guildford and at the far end of what's now known as the A3 corridor. Savills estate agents recently described the area as the most sought-after in the country for homebuyers. My parents have been divorced for some time, but Mum still lives there. She had the property valued not so long ago at £350,000, more than 10 times what they paid for it as a young couple. Even accounting for inflation, it has at least tripled in value over the three decades I've been alive.
That mortgage represented around double my baby boomer parents' combined annual income in 1980. If I wanted to buy the same house today, it would cost me 10 times mine. Even if I had a pregnant wife with comparable wages, it would still be well out of our reach. The same would be true of a studio flat in north London, where I currently rent – or one in south London, for that matter. And I have a decent job, unlike a lot of other young people in this economic climate. The average age of first-time buyers in the UK is now 38; at the tail end of our twenties, my younger brother and I are looking at another decade each of letting. Little wonder, then, that we're being called "Generation Rent".
An Englishman's home is no longer his castle: it's a bedsit on a six-month lease that he's not allowed to redecorate. In 1999, private renters accounted for 9 per cent of British households. Now it's 14 per cent. Figures from the Department of Communities and Local Government suggest that 3.1 million people rented a property privately in 2008/9 – a million more than in 2001. According to the latest English Housing Survey, home ownership has fallen to its lowest level in 20 years.
In London, reports the National Housing And Planning Advice Unit (NHPAU), only one in 10 couples under 40 with children can afford to buy a home. And some people can't even rent – one in three British men aged between 20 and 34 still live with their parents, as do one in five women. Research by unbiased.co.uk recently found that two million homeowners may this year sell their homes and start renting instead, many citing geographical mobility as one advantage of being a tenant. Home ownership, many of the sell-to-renters said, was no longer an aspiration.
David Willetts is the the Shadow Minister for Universities and Skills and author of The Pinch: How The Baby Boomers Took Their Children's Future – And Why They Should Give It Back. In the past, he says, "Home ownership might have been analysed as an issue of social class, but one of the biggest challenges now is to spread ownership and opportunity to the younger generation."
Bob Pannell, head of research for the Council of Mortgage Lenders (CML), agrees. "Before the credit crunch, the housing market didn't much affect when young people left home. They went into private renting rather than buying; that was the generational shift compared to their parents. But now there are pressures both on rental values and house prices, and the jobs market is problematic. So will young people have the same ability as their older siblings to leave the parental home, even for renting?"
Mike Applebee, a 49-year-old father from Bristol, last month sent an angry letter to The Independent on the subject. "I have three children leaving college with enormous debts, no hope of earning enough to buy their own homes and therefore unable to have a significant stake in society," he wrote. "Does anyone take time to consider how despairing the current generation feels by being born too late? What about the consequences for our society, now and in the future?"
A few young people of my acquaintance have managed to get a foot on the first rung of the property ladder: those with families wealthy enough to give them a leg-up. My own parents and their peers got no financial assistance from our grandparents when they bought their homes, and they didn't need it. But by 2009, 80 per cent of first-time buyers under 30 had help from their families, according to the CML. "All the first-time buyers round here – even those in their 30s – are funded by the bank of Mum and Dad," a Surrey estate agent explains. "If you're trying to finance yourself and stump up your own deposit, you're not going to be buying in Guildford."
One of the many striking statistics in The Pinch is that in 1974 the average 50- to 59-year-old earned 4 per cent more than the average 25- to 29-year-old; by 2008 that discrepancy was 35 per cent. Maybe that's why the last census found 150,000 baby boomers with not just one home, but two. "The baby boomers are doing disproportionately well in terms of both earnings and the likelihood of having a job," says Willetts.
"They see their own kids struggling so they reach into their back pockets, run down their savings or take out a further mortgage on their property to help them, but that's family doing its best to offset a wider failure of public policy." The problem with more affluent parents helping their children to buy a home, he explains, is that it makes home ownership "more and more hereditary".
Yet even the power of baby boomers to help their children has been greatly diminished by the crunch, explains Pannell. "Parents might be in a privileged position as homeowners, but watching the value of your house fall by a fifth rather batters your confidence about extracting equity to help your kids. That's why there are so few first-time buyers now."
Many of those who did help their children before the recession might now regret having done so. Of the 900,000 UK households in negative equity at the end of 2008, Willetts writes, two-thirds belonged to the under-35s. "All their wealth is tied up in that property and it is wiped out. They are asset-less." Some of the first-time buyers who took advantage of Northern Rock's 125 per cent "Together" mortgage and its equivalents have seen their homes repossessed, the unsuspecting victims of a modern morality tale.
Meanwhile, the slump in prices that we could be forgiven for expecting has never materialised. Property values fell by about 20 per cent after the crunch, but have quickly crept back up again. Moreover, says Pannell, "Mortgage lenders have become highly risk-averse. Typical lending criteria used to require, say, a 10 per cent deposit before the crunch. But while prices may have recovered, deposits are now stuck at 25 per cent, so the goalposts are shifting ever further away from would-be first-time buyers."
Ten years ago, a first-time buyer had to raise a deposit worth, on average, 16 per cent of their annual income. In 2009, that figure was 64 per cent. The cost of property may be 10 per cent below its 2007 peak, but deposits have increased by an average of 124 per cent. In London, the deposit on a typical flat is a whopping £57,213. Anyone who wasn't on the property ladder before the crash has seen its bottom rung kicked away by the last people to make the climb.
Up North, property is significantly cheaper than elsewhere, yet buying a home is even more difficult. Average earnings in the South-east have at least increased alongside house prices. Remarkably, relative to income, it is areas of suburban London that are most affordable for first-time buyers, while Propertyfinder.com last year named Berwick-upon-Tweed and Hartlepool the least-affordable in the country.
Despite the huge drop in prices, says Jonathan Copeland, a Hartlepool estate agent, "the young people I'd have expected to be first-time buyers are renting instead. In the past, people were relying on 95 per cent mortgages, knowing they didn't actually have to save a deposit. They just don't have the savings for a deposit on the 70 or 75 per cent loan-to-value products that are available now."
My family features one exception to the rule. Ed, my stepbrother, who's a year younger than me, somehow bought a flat in London with his own money in 2006 – including the deposit. When he was about 11, he says, his mother (my stepmother) told him to start saving up. "My sisters just went to the sweetshop," he says. But Ed put the money away for a rainy day.
I went to the sweetshop too, I tell David Willetts sheepishly. "Well, some young people do more discretionary spending than others on a Friday night," he replies. "But saving is much harder than borrowing. You get junk mail offering you loans, whereas saving is regarded as an extremely dangerous activity, and is massively supervised and regulated. Some of the obvious ways people started saving automatically in the past – like joining the company pension scheme – have disappeared or are much less generous than they once were."
"It's not as if I live like a monk," Ed insists, as I imagine him reclining comfortably on the sofa in the sitting room that he owns outright. "But I've always enjoyed the process of saving. Even at university, cash never burned a hole in my pocket. If I earned a bit I just put it away somewhere and pretended I didn't have it... I sound like a freak, don't I?" Of course not, I tell him. You just sound like a smug git.
In September 1980, Mrs Thatcher had only been in Downing Street for 18 months, and my parents' mortgage remained the one socially acceptable form of debt. I, on the other hand, managed to burn through five figures of credit before even leaving university: on student loans, credit cards and overdrafts. And I've no assets to show for it besides a fractious relationship with literary theory and a killer-CD collection.
"Thatcher sold off the family jewels," says psychologist Oliver James, author of Affluenza and Britain on the Couch. "She let people buy the national housing stock, and at the same time deregulated finance and made it possible to lend money to many more people in vastly greater quantities. Prior to Thatcher you had to build up a relationship with a building society or bank to prove your viability as a borrower. The huge increase in home ownership, combined with the greater availability of credit, created a gigantic property casino.
"Then New Labour persuaded students to rack up huge debts, which meant that potential homeowners were already in debt when they left university, locking everybody into working long hours in as high-paying and stressful a job they could find. So now we all feel time-starved and debt-ridden. If you're in the younger generation and you don't have rich parents to help you buy a house, you're in trouble."
Thanks to those TV property shows, we dream of installing chrome kitchens, built-in bookshelves and wall-to-wall windows – and then selling it all to move somewhere bigger and "better". But before it was an investment, a house used to be a place to live. Now it's a financial safety net. Home, once a source of comfort, has become a source of equity. Mum remortgaged the house to pay for our educations, then did so again when times were a bit tough. Without a large pension, it will be her only significant asset by the time she retires.
The author Iain Sinclair, who has lived in the same house in Hackney since 1968, wrote in these pages last year that there is something seemingly "perverse, and probably dysfunctional, about a person who stays in the same house for 40 years. What about the expanding family syndrome, the school lottery migration, the property portfolio neurosis?" That restlessness among homeowners has, says James, "helped to fragment society. Greater geographic mobility has smashed the collectivist extended family network and contributed to the 'broken society' that David Cameron claims he wants to mend."
I may not have a pregnant wife (or, indeed, a non-pregnant one) just yet, but without the possibility of a roof over our heads, which of my contemporaries is going to want to start a family anyway? No wonder so many first-time parents are now in their late 30s and early 40s. "A lot of people associate settling down with a partner, having kids and buying your first flat or house as things that go together," says Willetts. "And that rite of passage has become much harder and messier to achieve."
Maybe I don't need to own a house. France famously has a thriving rental culture. In Germany, almost two-thirds of private homes are rented. In Italy, 59 per cent of 18- to 34-year-olds still live with their parents and don't seem too fussed about it. But with no property, and minimal pensions prospects, what are we supposed to live on when we retire? Our parents have such inflated life expectancies that we might not even have inherited anything by then.
And renting here is not like renting on the continent, or so says Penny Anderson, who has been a tenant in Manchester and Glasgow for 20 years and blogs under the name Renter Girl (rentergirl.blogspot.com). "I'd love to buy somewhere but I've never had enough money," she says. "Renting is cash down the drain, and landlords seem to want their tenants to feel insecure. Not even being allowed to decorate your home is a nightmare. And I have plenty of evidence of landlords throwing out tenants for no reason. The culture needs to change; there should be a legal assumption that a tenancy will endure unless there's a really good reason to end it."
In February the Housing Minister John Healey proposed some tenant-friendly measures such as a "housing hotline" offering free advice to renters, and a national register of landlords, which would at least make them more accountable for the upkeep of their properties. "In the past six or seven years there's been a real expansion in the number of small-scale buy-to-let landlords," says
Anderson, "and they're the worst of all. They make tenants feel like they're living in a piggy bank, not a house."
I avoid mentioning to her that my Dad is one of them: my brother rents his Croydon flat at a family discount. It's a common story – many baby-boomer parents are buying new properties and installing their children as tenants. So common, in fact, that Dad and his wife bought another flat for my stepsister to rent. Both properties have interest-only mortgages, he explains, so he doesn't expect to make any money out of them. He's not by any means a rich man, and yet he's become a miniature property magnate without even trying.
It's all very well me deciding to rent for ever, but rental stocks are just as low as purchase ones. Thanks to the shortage of decent properties – or the mortgages to pay for them – many property owners have sold their homes only to find themselves stuck in the rental market, unable to find somewhere else to buy. Last month, the letting agency group Countrywide reported that 2.9 tenants were now competing for every one of their properties.
The British Property Federation advocates a more professional, European-style rental market, and firms such as Aviva and Legal & General have assigned multimillion-pound funds to acquiring large blocks of buy-to-let stock, backed by the Government and the Mayor of London, for just that purpose. But the only real solution to high prices and low stocks, say Willetts and Pannell, is more house-building. All the major political parties agree on that end, even if they disagree about the means of achieving it.
In the last decade, between 130,000 and 170,000 new homes have been built each year. The NHPAU estimates that housing need is around double that number. "The population is growing and house-building is not keeping pace with it," says Pannell. "If that chronic undersupply continues it will affect everybody. House prices all through the market will continue to increase relative to incomes. That will exacerbate affordability problems for young people, and make it very expensive for those already on the housing ladder to move up it."
It came as no surprise to me to read that stocks of rental property in central London are down by 50 per cent on their customary levels. When some friends and I started to look for a house that we could share last autumn, we encountered predictable problems. Our budgets meant we'd have to rent either a house with a Harlow postcode or a shallow hole in Hoxton. In the end, we went our separate ways instead. I found a room in a shared flat – a big, well-lit one that's starting to feel like mine, even though it isn't. The strangers I moved in with were two sisters with whom I had the good fortune to get along. But who owns the flat? Their Dad, of course.
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