Home—Blog—Are first time buyers older because their grandmothers live longer?
Jan 30, 2012, 04:34
Posted byMerryn Somerset Webb
Comments (32)
You’d think that with house prices falling in both nominal and real terms and with incomes rising in nominal terms at least, things would be slowly getting easier for first time buyers. But they aren’t. The Royal Bank of Scotland’s ability-to-buy index shows things getting worse rather than better.
The index, which measures the effects of tax, earnings and living costs as well as house prices and interest rates – has risen from 96.5 three years ago to 98.6 now. The higher the index the harder it is to buy a home.
So why, even as the house price to earnings ratio is coming down and when interest rates and mortgage rates are still near record lows, is this index going up? It is largely about the deposit. In the final years of Britain’s great property bubble, deposits weren’t necessary – indeed, having one was considered to be weirdly risk-averse. These days, they are considered absolutely vital. All the best loans go to those with high deposits and no loans at all go to those with no deposits.
But the inflationary squeeze on real incomes has made it hard for the young to save enough to get anywhere near the amount needed to buy the average home. If house prices stayed completely flat and if the average would be first time buyer was by some miracle able to save 30% of his discretionary income, it would still take over three years for him to save the average 10% deposit.
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But if you stop to think about this, barring the bubble, it has always been hard for first time buyers to raise deposits. Saving £20,000 (or the equivalent of £20,000 or so) from the kind of salaries of the under 30scan’t have been easy even 30 years ago when real incomes were actually rising.
Might something else account for the fall in the number of and the rising age of first time buyers? In the 1960s the average first time buyer was 23. In 1980 he was around 30. Now he is 36, six years older. But look at the demographic changes that have accompanied that huge shift. First has been the rising life expectancy of the would-be buyer’s grandparents. Female life expectancy in 1980 was 76. Now it is 82. So people wait for their inheritance (and hence their deposit), on average, for six years longer than they did. That might be making a difference.
Another change that can’t be dismissed from the equation is the age at which women have their first child. In 1985 it was 25. Now it is 29 (it is harder to track the age at which men have their first child but it is around 32). That might be making a difference too: nothing spurs people into action faster when it comes to saving or begging the cash for a deposit than the need to nest a nursery for their first born.
Published in Blog More articles by Merryn Somerset Webb
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By David Stevenson, May 16, 2012
By Merryn Somerset Webb, May 10, 2012
By John Stepek, May 03, 2012
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(30 January 2012, 06:03PM) Complain about this comment
Nice try Merryn, but leave the interpretation of demographics to the guru, Danny Dorling. If female life expectancy is 82 and those people had their children at 25, you are pointing to a typical FTB being 57!. I think you are, clumsily, alluding to inheritance from granny and grandad.....not mumsy. You are, of course, right to point to the general inflation in demographics. The later childbirth will not feed through for a generation,but the elderly do live longer, people marry later and have kids later, so it makes sense for house purchase to be (slightly)delayed too.
(30 January 2012, 07:36PM) Complain about this comment
Would be interesting to compare net salary of FTBs at the beginning of 90's and now. I bet recent FTBs pay more and also group of FTB has less people that it was in 90's (compared to the retirements). So in sum total power of today FTBs is weaker than it used to be in the past.
(31 January 2012, 04:35AM) Complain about this comment
How about the theory that longevity means gran's house is not for sale, limiting supply and keeping the price high?
(31 January 2012, 09:24AM) Complain about this comment
Boris, you are completely right - I stopped thinking too early! Replace mother with grandmother in the above and the point stands.
(31 January 2012, 12:49PM) Complain about this comment
I bought my first house at age 21 in 1971, £5,800 We had to put a deposit down of £2000 and still had to go on bended knee to get a mortgage!£2000 was my annual salary gross before tax , nat ins etc . If you asked people to save 25 to 30 K today as a down payment they would probably be aghast at the idea.I worked full time and did a part time job in the evenings and weekends to save it up over 2 years. My repayments were 25% of my gross salary per month.
(31 January 2012, 01:11PM) Complain about this comment
Most people have to save to pay for their deposit themselves - most do not get loans/handouts/inheritance from relatives. The age of first time buyers is rising because prices are higher relative to incomes, and so it takes longer to save the deposit.
(31 January 2012, 03:22PM) Complain about this comment
Sticky Steve, I have a large deposit saved, (around a years salary), and am not buying because prices are still way too high. Waiting patiently.
(31 January 2012, 03:37PM) Complain about this comment
sticky steve, I would love to know what type of house you could buy for 1 years salary as deposit and 25% of your wages on mortgage payments every month.Was it a better property than the 2 bedroom flat you would buy with that these days?
(31 January 2012, 04:23PM) Complain about this comment
Sticky you have demonstrated just how much the housing market has been distorted away from what was normal when you were young, and how high housing costs decimate our economy.Lets use your figures, translated to today. A hardworking brit, on a double average salary of 50k at 21. Using your figures, we would expect him to be able to buy a property for just under 3x income. That would be around 140-150k. Apart from areas of no employment, there are NO properties in this price range that are anything but substandard. For anywhere in the south east, finding somewhere safe and liveable under 200-250k is not possible. A small family house in a poor area will be 300-400k. The fact that an above average earner simply cannot replicate what you and your generation did demonstrates why the housing market is broken. Housing costs are too high, due to years of credit easing and restrictions on housebuilding.
(31 January 2012, 04:40PM) Complain about this comment
I'm with Colin on this one-I too have saved up a large deposit- one that in a reasonable, level headed market would get me something worth the money I'm willing to put down on it. As it stands now, house prices are way too high, the places I've looked at recently are overpriced in relation to what's on offer. Something still has to give in the UK housing market, but it's not going to be me & my deposit...!
(31 January 2012, 05:38PM) Complain about this comment
@gurner- well said.I guess this is also the result of a housing market which has been well under way for decades now, with generations of people being able to take advantage of & enjoy the opportunities of a market which had yet to be saturated & (over)analyzed. Every inch of the market has now been well covered, to my generation's disadvantage.I'm better off than my parents were, but in no way can I afford a similar type of opportunity when it comes to buying a house in an area like my parents did. My parents paid off their house within 10 years-not because my father's salary was generous, or because they put down a large deposit or that they shovelled extra payments into it over the years - but because it was reasonable at the time to be able to pay off a house within 10 years, based on an average salary & realistic house prices. You're lucky today if you can pay off your house in 25 years.
(31 January 2012, 05:40PM) Complain about this comment
This 3 times salery for a house was in the days of constantly higher interest rates. It is possible that we will never see high interest rates again. This figure should be nearer 4 times gross salery now.Also the calculation is not to buy a three bed detatched, but to actualy get on the property ladder with a two bed terrace. I would say that prices are actualy getting to be very near what they should be, which is around 4 times gross salery.
(31 January 2012, 05:41PM) Complain about this comment
(31 January 2012, 05:46PM) Complain about this comment
Michael, the reason why your parents could pay off their mortgage after ten years is because inflation was between 10 and 20 %. Saleries increased rapidly over a short period, deflating any debt. Now inflation and pay rises are small, so what is a high debt now will be a high debt in years to come. Double trouble
(31 January 2012, 05:55PM) Complain about this comment
@Dean-regardless of inflation, the conditions were overall more favourable for my parents in buying a decent house & paying it off within a reasonable time frame than they are now.The 'double trouble' that you've described makes today's situation even more depressing.....
(31 January 2012, 06:02PM) Complain about this comment
I too am a potential FTB. I'm 31 on just over the average salary with almost a year's salary as a deposit (1/2 from an inheritance, 1/2 saved over the past few years).Tracking the price of 3 bedroom houses in my area each month, I can see they are dropping (in *real* terms) at around £1000 per month. Until this figure drops to less than I'm paying in rent, I'll stick it out.I suspect the government's policy will be to keep house prices stable in *nominal* terms so that the average person in the street thinks that house prices haven't fallen.In addition, further to Merryn's demographic observations, if one tracks the number of middle-aged in the UK, it correlates closely with house prices (in real terms):http://1.bp.blogspot.com/_D02c6mNF5W0/TEnjf3_OENI/AAAAAAAAABM/WQrTmnBu364/s320/UK_House_Prices.JPGCausation or simply correlation?
(31 January 2012, 06:54PM) Complain about this comment
I am also in a similar situation to James and have around 60k deposit that I have saved over the years.Working in IT ans software I have decided to move to Ireland this year as there are many skilled software, IT and engineering jobs there and I can buy a nice house for less than 1/2 the price of the UK.This believe that this is the best financial decision will ever make as I will save hundreds of thousands of pounds over the next decade.I are under 35 and don't own a house and have a skill or profession I would seriously consider emigrating as it might be to late for you waiting for another 5 years.
(31 January 2012, 08:01PM) Complain about this comment
I think a house price correction is the pied piper of this country. If the 'oldies' (property owning chaps) don't accept they need to take a hit they'll wake up to find all the the children either emigrating or putting themselves in 'need' to obtain subsidised housing. I aim to qualify as a chartered accountant and a chartered financial analyst in the next two years. I can easily get a highly paid job in the UAE paying around £65k tax free and face lower accomodation costs than here. I know it's not always greener but eventually I aim to move to Canada or the USA, not just for my sake but my children's sake.
(31 January 2012, 08:06PM) Complain about this comment
I have just sold a house in Cambridgeshire for 20% less than the price in 2007 and, with the exception of expensive areas in London, this seems to be about the average drop, in my case this was £45,000 but I don't think this is unfair as prices had become ridiculous even though I stood to gain. I also bought my present house at the top of the market but, as I don't intend to leave, it doesn't really matter, win some. lose some.
(31 January 2012, 08:09PM) Complain about this comment
Another demographic point is due to the social mobility in the 1960's and 70's many poor kids became at least average. Great for them but their kids are faced with expiring grannies who own few or no assets. For them there is no inheritance until their own parents pass away, i.e when they themselves are about 60.Merryn is right to point to the genereal increase in ages across the board. Retiring later, leaving school later........even divorcing later should get a mention . The banks need to recognise this and move to 30 year mortgages as typical, at 4 to 5 times pay.
(31 January 2012, 08:24PM) Complain about this comment
It also counts that the population is increasing with immigration.Why does this country allow net immigration when there aren't enough houses to house the population that already live here?
(31 January 2012, 09:07PM) Complain about this comment
#23 Jonathan R. Many immigrants are here to do our dirty dangerous and tedious jobs. Like the 1.2% of the population of Kensington who are Filipino and the 5,000 Finnish women under age 25 who live in central London.Immigration is only half a story as emigration is harder to measure. Just go to Dubai,Australia,Spain or the Dordogne to see how many leave our shores too. Oh, and the largest ethnic minority in the wealthier parts of London are.......Americans. Thr rich covet much of our best housing stock and leave many good homes empty when they sojourn abroad.
(31 January 2012, 10:48PM) Complain about this comment
I bought a two bed terrace house in an unfashionable part of London in 1992 when I was 25. I was single and had no family around. There was a recession on but I was lucky enough to have a good job. However, the house only cost £53000 and I put down a deposit of £3k, which took me less than a year to get together. I dont think the lack of FTBs is because mum or grandma are living too long. Prices remain too high for FTBs because property in the UK is awash with amateur landlords.
(31 January 2012, 11:12PM) Complain about this comment
MacDonut, Your point still doesn't answer my main point. "Why does this country allow net immigration when there aren't enough houses to house the population that already live here?" We also have high unemployment with plenty of people who could do the jobs immigrants are doing, but in this world of meritocracy hard workers are rewarded with starvation wages while the privately educated rich convince as they are worth hundreds of times the minimum wage for decisions that are no better than decisions made by tossing a coin.
(01 February 2012, 09:03AM) Complain about this comment
I bought my first flat when I was 25 not smart but somewhere to live.You all forget, many people did not go to university, I started work at 16, my husband, from a disfunctual family at 12.We were working for 10 years earlier than is now considered the 'norm' with university and gap years.We did not have help from bank of mum and dad or granny (my dad is still alive and gran only died last year, 107)
(01 February 2012, 02:06PM) Complain about this comment
#24 Jonathan R. I guess the main reason is we have an aging population and a need for younger people, especially to do the less well paid jobs. I tried to show that many different types come here including quite rich ones. I'm also trying to show that "emigration" can have an impact on lack of housing especially where rich people have several properties and leave many empty for much of the year. I'm also convinced the Government are quite happy to see the extra demand for housing help to prop up beleagured HP's.
(01 February 2012, 02:08PM) Complain about this comment
When I move to Ireland I am going to buy something for under €100k like this:http://www.daft.ie/searchsale.daft?id=630878I may not be able to earn so much but escaping the student loan and paying rent will be saving 30% of my living costs.Again if you are skilled I urge you to consider emigrating to escape the student debt and the burden of high house prices. Don't wast your life in the UK waiting for house prices to fall.
(01 February 2012, 05:20PM) Complain about this comment
The idea of a 'housing ladder' is a myth.
(01 February 2012, 06:15PM) Complain about this comment
John, I don't know what will happen in future but the housing ladder worked for us and many others. Ist. buy 1976 2 bed mid terrace good area in Glasgow £12,000 salary at the time £4,000 + mine £2,000. Sold £24,000 in 1984. 2nd. Same area 3 bed. semi £32,000 sold 1996 £66,500. 1 salary £20,000. 3rd. 3 bed detached Cambridgeshire £66,500 1 salary £32,000. Valued at £215,000 in 2007 sale fell through, now a widow I moved & let for a while finally sold for £171,000 in 2011. Bought in Kent in 2007, peak price, a large 4 bed detached outright in great area for £320,000 . So a very good ladder but takes a long time. Always bought to live in not an investment.
(01 February 2012, 07:27PM) Complain about this comment
"House prices have to keep falling until they get back to long-term norms of about three or four times earnings," says Jonathan Davis on BBC website."They are still about seven or eight times earnings - they still have a long way to go." He reckons the absolutely dire state of the economy, eventual increases in interest rates further down the line, and no return to the days of easy lending, mean that house prices will fall for several years to come. So, sit back and wait it out...
(02 February 2012, 09:30AM) Complain about this comment
Another factor that prevents FTBs from saving up the deposit is that the younger generation have higher expectations in terms of consumption. I wonder how many people in their 20s and 30s who complain of not being able to save a deposit, view expensive tecnology and alcohol as non-discretionary spending?
(04 February 2012, 01:01PM) Complain about this comment
We forget Peter Pan syndrome too. A recent survey for the BBC showed on average people feel youth ends at age 32 and old age does not start until 68. For older people the dates are even later, eg over 70's think youth ends at 42! The idea that you aren't really a grown up until your parents are dead applies too. Many simply do not see themselves as adult or responsible enough to consider house purchase , whether or not the money is available.
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