Staines Baby Boomers vs Staines Milennials (Part 2)

Well last week’s article ‘Staines Baby boomers’ £1.5bn Windfall – Unfair or Not?’ caused quite a stir. In it we looked at a young family member of mine who was arguing the case that Millennials (those born after 1985) were suffering on the back of the older generation in Staines. They claimed the older generation had seen the benefit of the cumulative value of Staines properties significantly increasing over the last 25/30 years (which I calculated at  £2.52bn since 1990). In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the Staines housing market.

I replied there should be no surprise though that the older members of our society hold considerably more of our country’s wealth than the younger generation. This wealth is accrued and saved across someone’s life, and reaches its peak about the time of retirement. If we are to comprehend differing wealth levels between generations we need to compare ‘apples with apples’. It is much more important to track the wealth held by different generations at the same age, i.e. what was ‘real’ wealth of the 30-something couple in the 1960’s compared to a 30-something couple say in the 1980’s or 2010’s?

Looking back over the last 120 years at various economic studies, this growth in wealth from one generation to the next (at the age range), only happened over a 30 year period of between 1960 and late 1980’s. Since the 1990’s, wealth has not improved across the generations, in the same age range.

So could it be all about these people saving? The fact is, in the last 10 years, UK households have saved on average 7.5% to 8% of the household income into savings accounts, compared to an average of 6% to 7% in the late 1960’s and 1970’s. The baby boomers haven’t been actively squirreling away their cash for the last 30 or 40 years in savings accounts to accumulate their wealth. Most of their gains have been passive, lucky bonuses gained on the back of things out of their control (unanticipated and massive property value rises or people living longer making final salary pensions more valuable) – it’s not their fault!

...and herein lies the issue … it is assumed that these Millennials aren’t buying property in the same numbers like the older generation did in the past (because most of their wealth has come from house price inflation). The Millennials have often been described as ‘Generation Rent’, because they rent as opposed to buying property – because we are told they can’t buy.

However, when Staines mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. As you can see, whilst the ratio of average house price to average earnings in Staines has  changed over the last decade, it is not as much as one might think.......

 ·       2008 average house price to average earnings of a single person in Staines 8.33 to 1 

 ·       2017 average house price to average earnings of a single person in Staines 11.45 to 1

 (i.e. in 2008, the average house price in Staines was 8.33 times more than the average person’s salary in Staines and this has only risen to 11.45 in 2017 – and all this off the property boom of 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. They call this 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 simple fact is, in the majority of cases, it is still cheaper for a first-time buyer to buy a property with a 95% mortgage, than it is to rent it. The barrier for these Millennials, has to be finding the 5% mortgage deposit – instead of being able to afford monthly mortgage outgoings at the current 95% mortgage rates?

Millennials make up 5,629 households in the Spelthorne Borough Council area (or 14.2% of all households in the area).  However, behind the doom and gloom, surprisingly, 45.1% did save up the 5% deposit and do in fact own their own home (that surprised you didn’t it!)

Nonetheless, the majority of Millennials in the area still do rent from a landlord (2,260 Millennial households to be exact). Yet, they have a choice. Knuckle down and do what their parents did and go without the nice things in life for a couple of years and save for a 5% mortgage deposit ... or live in a lovely rented house or apartment (because they are nowadays), without any maintenance bills and live a life with no intention of buying (because renting doesn’t have a stigma anymore like it did in the 1960’s/70’s).

Neither decision is right or wrong – although it is still a choice. Until Millennials decide to change their choices – the country’s private rental sector will continue to grow for the next 30 years – meaning happy tenants and happy landlords.

Staines Baby Boomers' £2.5bn Windfall - Unfair or Not?

Recently I was having a chat with one of my second cousins at a big family get-together. The last time I had seen them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Wow – how time flies!

So, I got talking over a glass of lemonade with my second cousins and a couple of their children, about the times of 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes .., foolishly, I said what with all the opportunities youngsters had today, they had never had it so good!

And of course, one of my cousin’s children had gained some financial/economics qualifications before going to Law School, so they debated with me the genuine economic predicament of Millennials and how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation, causing an unparalleled disparity of wealth between the generations. And of course I had to ask why that was?

They said Millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the Bank bailout after the Credit Crunch). Back in the 1950’s and 1960’s, nobody predicted us Brits would live as long as we do today, and in such abundant numbers. The pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish and they are now hurting the Millennials of today and will do so for years to come.

Bringing it back to property, the young second cousin once removed ‘soon to be’ lawyer, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s. Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.

This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger Millennials…. So Houston Staines – do we have a problem??

Well Staines Property Blog readers, you know I like a challenge. I couldn’t disagree with some of what the younger family member said, but there are always two sides to every story, so I thought I would do some homework on the matter ..

Since 1990, the average value of a property in Staines has risen from £107,500 to its current level of £443,000. As there are a total of 7,506 homeowners aged over 50 in Staines; that means there has been a £2.52bn windfall for those Staines homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s.

 

 

I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Staines’ baby boomers. The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one  … and so with all this wealth, the figures do back up the youngsters argument that Millennials are being priced out of home ownership.

Or do they? Are they?

Next week, I will carry on this discussion where I will give the Baby Boomer’s defence to the prosecution’s case!

 

Landlords still Looking for Future Property Investments

Results from a recent Property Investor Survey show that the proportion of landlords looking to expand their portfolios in the coming months has grown. Although many landlords will have been affected by the recent and ongoing restrictions to tax relief on mortgage interest costs and the introduction of the stamp duty surcharge on second homes, a recent study has found landlords are still looking for future property investments.

Results from the Property Investor Survey show that the proportion of landlords looking to expand their portfolios has grown to 48 percent, up from 45 percent in November 2016 and 41 percent at the same time last year.

The survey, which was conducted over a two-week period in May this year, shows that optimism is slowly returning to the buy-to-let sector, despite the raft of changes that have impacted landlords and their buy-to-let property portfolios in recent years.

Landlords prefer 5-year fixed rate mortgage deals

Part of the reason for the increase in landlord optimism is down to the record-low interest rates that show no sign of rising anytime soon. To make the most of the incredible deals that are currently available, landlords have been increasingly opting for five-year fixed rate mortgages.

In May 2016, the same survey found that 21 percent of buy-to-let landlords were opting for five-year deals compared with 18 percent choosing the three-year alternative. Since then, there has been a dramatic shift in investor preferences, with five-year fixed rate deals now the preferred option for 42 percent of landlords. That’s twice the number in May last year and up 9 percent on November 2016.  

On the other hand, the number of landlords choosing a three-year fix has plummeted with just 5 percent of respondents going for that option, making it even less popular than ten-year fixed deals.

Adjusting to the current environment

Although the experts do expect buy-to-let lending to fall slightly over the course of the year, these latest results show landlords are starting to bounce back. Rather than exiting the sector, landlords are instead choosing to adapt their investment strategies to successfully accommodate the new regulatory landscape. Two of the biggest shifts we have seen are the rise in the number of landlords choosing to incorporate their buy-to-let portfolios and the surge in the popularity of five-year fixes as landlords maximise their borrowing options.

The survey also revealed some of the other changes landlords are making to adjust to the shifting economic environment. 62 percent of respondents said they had consulted a professional tax adviser, with 34 percent admitting to seeking advice specifically because of the changes to tax relief on finance costs. 28 percent said they already had an existing relationship in place.