Despite 81% acknowledging that owning your own home is a good financial investment for the future, Generation Rent have
MORTGAGES
Generation Rent: A Society Divided? Perceptions of the First-Time Buyers Market 2013
BUY
RENT
Generation Rent: A Society Divided?
Key facts and findings
71% of 20-45 year olds anticipate that the country is in danger of being divided by social and economic differences between homeowners and nonhomeowners.
57% of non-homeowners are concerned they will be unable to retire if they have to rent all their life. A similar proportion believe that people can never feel fully settled in rented property.
Over half (52%) predict that Britain will become a nation of renters within the next generation.
47% think it is important for parents to bring up children in a home that they own, not rent.
One in three (31%) are only prepared to save for three years to build up the deposit on their first home.
Bank of Mum and Dad remain heavily burdened with nearly a third (30%) concerned the support they have provided may affect their own financial future.
A fifth (21%) of nonhomeowners aged 20-45 have already given up on the prospect of owning a property – this rises to 43% among 4045 year olds.
29% of 20-45 year olds have no plans to get on the property ladder.
02
Generation Rent: A Society Divided?
Introduction Homeownership is a common goal shared by the majority of people in the UK but in recent years the impact of the global financial crisis has brought about a structural change in the property market. The dip in market activity has been most noticeable among first-time buyers and has led to the rise of the term Generation Rent. The Generation Rent Report is the definitive annual research by Halifax, the UK’s leading lender to first-time buyers, which examines the current perceptions and views of the first-time buyer market. This is the third annual report and now contains data from over 24,000 interviews with 20-45 year olds built up over three years and over 2000 parents of 20-45 year olds over the past two years. The latest report finds the issues currently facing those looking to get on the property ladder are such that there is a danger of it splitting the UK in two, with a division between those who can afford to buy and those who fear they will never be able to own their own home.
Social divide – Homeowners vs Non-homeowners Nearly three-quarters of young people (71%) anticipate the current difficulties facing those looking to buy their first home are so divisive it could split the country in two: into those that can afford to buy a home and those that cannot. Potential homeowners believe social impact of such a separation could have a bearing on neighbourhoods, families and the job market. 58% of people think this division will create long-term social problems which could: • leave Generation Rent without sufficient financial resources at retirement age • negatively impact communities by affecting social mobility • widen the existing wealth gap between homeowners and non-homeowners The private rented sector is now at its highest level since the early 1990s. In 2011-2012 there were an estimated 22 million households in England living in private accommodation1. More than half (52%) of those interviewed believe Britain will become a nation of renters ‘within the next generation’, an increase from 46% in 2011. The 2013 research also shows more people see Britain becoming more like Europe, where renting is the norm. However, the legislative backdrop of renting in Europe means rental agreements are agreed for a much longer period. By comparison, within the UK system, agreements are in place for a minimum of six to twelve months. This is likely to be a major factor in the belief of the two thirds of those interviewed who said buying a house, rather than renting, means people are more likely to feel settled or at home in their environment. Generation Rent believes the subsequent social benefits of this manifest themselves through people taking a greater stake in society, meaning they are more likely to take care of their local area. Homeownership as an investment, rather than a tenure choice, is also likely to intensify any community division, as 57% of Generation Rent believe that without a foothold on the property ladder they will be unable to retire.
1
English Housing Survey 2011-2012.
03
Generation Rent: A Society Divided?
Family values
Planning to buy a home
Despite 81% acknowledging that owning your own home is a good financial investment for the future, Generation Rent have placed house purchase further down the priority list and believe it to be the least achievable life milestone.
Despite the European ‘norm’ of renting and decreasing UK owner occupation, the proportion of respondents who believe renting is a waste of money increased from 59% in 2011 to 64% in 2013. However, Generation Renters in 2013 are much more pessimistic about their homeownership aspirations than they were two years ago.
Reaching educational and career goals, getting married and having children are all prioritised above buying a house, and nearly half (47%) say that owning their own home is less important in life than it was a generation ago.
Priorities for non-owners
Most important
Least likely to achieve
Achieving your educational aims
26%
12%
Achieving your career aims
23%
10%
Having kids
22%
28%
Getting married
16%
11%
Buying a property
13%
39%
However, a significant proportion (47%) believe it is important for parents to bring up children in a home that they own, not rent, despite many thinking they are more likely to have children than buy a home.
While 79% of non-homeowners still have aspirations to own their own home, almost half of non-homeowners (47%) agree that ‘owning your own home is less important in life now than it was a generation ago’. The reality of life among 20-45 year olds in 2013 is that less than half (44%) can claim to own their own home, with 46% renting and 9% still living with their family. Compared to their parents’ generation, where more than four fifths of parents own their own home (82%), most of them without a mortgage, the difference is stark. However, the Generation Rent survey highlights a disconnect between the desire and perceived ability to buy a home. Although homeownership is seen as advantageous by a majority, many of Generation Rent admit they are not taking the steps they need to purchase their own home. Just 16% have a realistic plan to buy a home within the next three to five years, a figure which continues to fall from 20% in 2011.
Best describes your current situation
2013
2012
2011
I already have a mortgage offer in principle
4%
2%
2%
I am in the process of applying for a mortgage offer in principle
2%
2%
3%
I have a realistic plan to buy within the next 1-2 years
10%
11%
12%
I have a realistic plan to buy within the next 3-5 years
16%
20%
20%
I would like to buy a home, but I don’t think I will ever be able to
36%
39%
38%
I have applied for mortgages but I was rejected, so I have given up
2%
1%
2%
I don’t want to buy a home and haven’t tried
29%
25%
23%
04
Generation Rent: A Society Divided?
Barriers to homeownership: Deposit
Barriers to homeownership: Cost of Living
Over a third (36%), the largest proportion of respondents, said they would like to buy a home but don’t think they will ever be able to. Considering the continued desire to own a home against the perceived likelihood of achieving this, it’s crucial to understand the apparent barriers to purchasing a house.
The most significant proportion of Generation Renters (42%) say they want to save for a deposit but do not have any spare cash to do so. Just 14% say they are saving every penny for a deposit and making sacrifices to their lifestyle to do so. A similar percentage (12%) say they are trying but more often than not spend their spare cash on having a good time, whereas a further 5% admit they don’t want to save for a deposit as they would much rather have a good time.
With the average deposit paid by first-time buyers in the first quarter of the year at £26,956 raising this down payment remains a key hurdle for Generation Rent. Nearly two-fifths (38%) of 20-45 year olds now saying the level of deposit required is the greatest barrier to homeownership. This has increased by 2% since 2011 further more, the size of the deposit is cited by 68% as one of the top three barriers. Despite this, over half (52%) of those aged between 20-45 who don’t own their own home are not currently saving to buy a property. Women are particularly likely to say they are not saving to buy a property (60% compared with 45% of men), and the older people get, the more likely they are to not be saving (72% of 40-45s, compared with 38% of 20-24s). However, few are preparing for a house purchase as a long term plan. Nearly a third (31%) say if they had not saved enough for a deposit within three years of trying. This self-imposed deadline would require Generation Renters to save just under £750 a month based on the current average deposit required by first-time buyers, in addition to any other housing costs they would also incur. Over a third (35%) admit they are relying on a windfall, bonus or an early inheritance to get on the property ladder. Location has a real impact on the perception of ability to buy. A quarter of non-homeowners believe property is too expensive in their area. This rises to 34% for those in London and the South East.
Deposits
2013
2012
2011
I want to save for a deposit but don’t have any spare cash to do so
42%
43%
47%
I'm saving every penny for a deposit and making sacrifices to my lifestyle
14%
14%
14%
I’m trying to save for a deposit, but more often than not I spend my spare cash on having a good time
12%
15%
14%
I don't want to save for a deposit - I'm not interested in buying as I'd much rather have a good time
5%
5%
5%
I don’t want to save for a deposit - I’m not interested in buying for another reason
27%
23%
20%
Nearly half of the non-owners who want to save for a deposit (46%) are cutting down or stopping going out in order to save enough money for the deposit on their first home. Other sacrifices stated include spending less on clothes, toiletries and/or personal grooming (41%), going on fewer or cheaper holidays (37%), and spending less on their hobbies (36%).
Mortgage payments as a proportion of income have fallen by more than two-fifths in the UK in recent years, from a peak of 48% in Q3 2007 to 28% in Q4 2012.
05
Generation Rent: A Society Divided?
Nearly a third (31%) of the non-owners who say they want to save for a deposit are spending money on eating out that could otherwise be used to save for a home of their own, and this figure is particularly high among 20-29 year olds (38%).
Barriers to homeownership: Income Nearly half of non-owners (45%) cite the fact they don’t earn enough money as the main reason they are unable to buy at the moment.
Money spent on things that could otherwise be saved for a deposit
2013
2012
2011
Eating out
31%
35%
34%
Alcohol/going to the pub
24%
27%
28%
Clothes
23%
32%
38%
Holidays
20%
31%
32%
My children
19%
22%
22%
Things for my current home
19%
27%
31%
Car
18%
21%
22%
Gadgets
15%
19%
21%
Looking good (cosmetics, grooming, beauty treatments)
13%
15%
18%
My boyfriend/ girlfriend
12%
15%
17%
Clubbing
8%
11%
14%
Higher quality accommodation than I strictly need
6%
7%
8%
Barriers to homeownership: Mortgages
I don’t spend on any of these things ahead of saving for a deposit
26%
16%
Halifax currently approves 9 out of 10 mortgage applications from first-time buyers, yet the perception from over a quarter of people (26%) is they would not be accepted for a mortgage.
20%
This is a key concern among younger non-homeowners. Once on the property ladder, would-be first-time buyers think, on average, they will be able to afford to pay £425 each month on their mortgage. A third think they would only be able to afford to pay £300 or less per month. However, based on an average house price paid by firsttime buyers of £130,0002, the average deposit required with a 90% LTV mortgage would be £13,000. The typical monthly repayment on a mortgage of this size would be £580 – higher than the £425 potential purchasers think they would be able to afford. When thinking about barriers, younger respondents were also more likely to mention ‘other debts’, finding the right property and stamp duty (named by 30%, 26% and 16% of 20-24s respectively, compared with 8%, 4% and 6% of 40-45s). Indeed ‘other debts’ are a particular concern among young men (named by 43% of 20-24 year old men, compared with 10% of 20-24 year old women).
The general fear that it is too risky to buy a home at the moment remains the most off-putting factor (88%). Perhaps encouragingly, however, the proportion of 20-45 year old homeowners who feel first-time buyers are being put off a great deal or a fair amount after hearing horror stories from friends or family about their mortgage applications has fallen from 57% in 2011 and 2012 to 53% in 2013. As was the case in 2011, there remains considerable pessimism about what first-time buyers face in relation to the mortgage application process. Over half (52%) think it is either ‘very hard’ or ‘virtually impossible’ for firsttime buyers to get a mortgage. This sentiment is even more broadly expressed by parents, of whom 59% think mortgages are very hard or virtually impossible to obtain.
2
Halifax – average first-time buyer house price purchase – May 2013
06
Generation Rent: A Society Divided?
Getting on the Ladder: Bank of Mum and Dad
Getting on the Ladder: Mortgage Lenders
Parental assistance is a well-documented support for those looking to get on the property ladder. According to the Council of Mortgage Lenders, the average age of including those buying a house with help from the Bank of Mum and Dad, stands at 29, whereas those first-time buyers buying without support have to wait another four years on average.
As in 2011 and 2012, the majority of 20-45 year olds (83%) think that first-time buyers are discouraged from applying for a mortgage by the belief that “banks don’t want to lend to them and find excuses to turn them down”. Parents are just as likely to hold this view (82%). Moreover, two thirds (65%) of 20-45 year olds think there is “a general perception that everyone is rejected by lenders and there is little point in applying”. This view is less common among parents, though a majority (58%) still think it deters firsttime buyers from applying.
Over a quarter (27%) of parents have already contributed towards a deposit to help their child buy their first home, and an additional 18% expect to do so in the future. However, few parents are supportive of their children borrowing money from family and friends as a way of to fund their purchase. Just 8% of parents believe first-time buyers should borrow money from friends and family in order to save for a deposit, In contrast, however, more than a fifth of 20-45 year olds (22%) think parents should be expected to help their children buy their first home. This is also a view that is more common among younger respondents (28% of 20-24 year olds, compared with 15% of 40-45 year olds) and those in London (35%, compared with 22% across Great Britain). Consistent with findings from 2012, a third (30%) of parents have concerns that the support they provide or have provided may affect their own financial future in later life/ retirement • 31% have dipped into their savings to help their children buy a property • 12% have given their child some or all of their inheritance early • 6% have dipped into their own retirement fund.
As in the past two years, over half of 20-45 year olds (55%) believe first-time buyers are being put off by being “too scared of being turned down” for a mortgage. The process for first-time buyers is seen as being stressful, with 59% thinking first-time buyers do not “want to go through the stress and anxiety of applying for a mortgage.” Parents are far less likely than their children to believe that fear and insecurity are factors which put first-time buyers off applying (only 40% think young people are put off applying as they are too scared of being turned down). One in three (30%) 20-45 year olds welcome the various schemes such as NewBuy and Help to Buy, which are aimed at encouraging and helping people to get on the property ladder, and think they will work. The same proportion of young people, however, believe the opposite, with 40% unsure. Lloyds Banking Group has committed £6.5bn to support over 60,000 first-time buyers get on the property ladder. In the first four months of the year, the group has helped 18,500 customers get on to the property ladder.
On average, parents of 20-45s estimate that they have £33,410 in savings – down slightly from £33,960 in 2012. However, 14% have no savings at all (a 2% increase from 2012) and this proportion is higher among younger parents (33% of under 55s have no savings).
58% believe Britain should remain a nation of homeowners.
07
