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Is 'generation rent' here to stay?

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Protecting deposits - and your pocket

According to a recent study by the Institute for Fiscal Studies, those born in the early 1980s have only half the wealth of those born in the 1970s had at the same age.

As a result, those born in the early 1980s have an average household wealth of £27,000 per adult – including housing, financial and private pension wealth. The same demographic was also the first generation since the 1940s not to enjoy higher incomes than those born in the previous decade.

Perhaps most startling, those born in the early 1980s are far less likely to own a home in early adulthood than any generation for half a century. By the age of 30, only 40% of those born in the early 80s were home owners.

So why has the property market become so difficult to break into?

A good place to start is with the most recent recession in 2008. Prior to this, most mortgage lenders were willing to give anything up to a 95% mortgage, with only 5% being funded by the buyer. After the financial crisis, the same lenders were more likely to offer up to 75% mortgages.

As a result, first time buyers found the amount they were able to borrow was more tightly tied to their income and many found it impossible to find a mortgage which would cover the cost of a home. Worse still, many were unable to even save enough for a deposit on the home. The stricter criteria for mortgage lending continues to persist.

This, coupled with stagnant wages and an increase in demand for rented properties – driving the cost of renting in UK cities to unprecedented levels – meant that many find themselves significantly worse off than their parent’s generation.

Those first time buyers that have been successful have largely relied on financial support from parents and grandparents.

Those born between 1970 and 1980 had a better start. It was easier to obtain mortgages and to borrow money, with lenders less pre-occupied with assessing any potential borrower based on their income and lifestyle. In some cases, lenders were willing to offer 100% mortgages. What’s more, many were able to get their finances in order before the recession hit.

So what of the next generation? Will they face the same struggles as those born in the early 80s?

While it is impossible to say for sure, I do not see the same problems plaguing first time buyers in the next ten years. For one, the economy is no far more stable than it has been in previous years and low interest rates mean mortgages are far more accessible – including 95% mortgages, which have started to reappear.

Government schemes like Help to Buy and Help to Buy ISAs are also helping young people to save and get on the property ladder, just as the first of many thousand new affordable homes become available. This week, the government unveiled a further £5billion fund to build tens of thousands of new homes by 2020.

While there is still much more that can be done to help first time buyers into their new home, the measures being undertaken by central government and more favourable economic conditions mean there is cause for cautious optimism.