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A new study by GE Money Home Lending reveals the extent to which ...
Life on Mars A new study by GE Money Home Lending reveals the extent to which the landscape for First Time Buyers in the UK has changed over the past 30 years, revealing a signiﬁcant shift in affordabil- ity, attitudes and motivations since 1977... “The conscious decision to choose life over home does come with its consequences, often making affordability more difﬁcult in later life.” Life on Mars 1 Introduction It has become something of a cliché of modern life that taking one’s ﬁrst step into the world of property ownership is a ﬁnancially and psychologically gruelling affair. But the deeper story of ﬁrst time buying - as reviewed in this report - is one of a consumer market that is adjusting to a whole set of socio-economic changes and challenges. The young buyer today is in so many attitudes and outlooks just not the same as he/she was thirty years ago. In terms of their outlook on life, today’s twenty-somethings are profoundly different to their counterparts of the nineteen-seventies, prioritising friendships and new experiences over settling into family life. As recently as 1973 almost nine out of ten twentysomethings who were not living with their parents, were living in a married couple and other types of household were quite rare. In the last quarter of the Twentieth Century things have changed hugely for twentysomethings. All those previously rare household types have become more common and notably, the proportion of independent twentysomethings living in married households has more than halved – seeing a fall from 88% in 1977 to only 39% today. The twenties, then, are no longer a time of transition between dependence on parents and establishing a new ‘traditional’ couple or family household. A whole new lifestage has emerged between these points, marked by more frequent changes of employment, increased foreign travel, vastly increased participation in higher education, and ﬂuid and unstable household formation. The conscious decision to choose life over home does come with its consequences, often making affordability more difﬁcult in later life. The pursuit of life experiences and leisure often increases young people’s personal debt levels, whilst at the same time house prices continue to move out of reach for them. This report, buttressed by specially commissioned opinion research, attempts to get under the skin of these changes and reveals the forces that drive young people to reach for that ﬁrst rung on the property ladder and how they are overcoming whatever obstacles to market entry lie in their path. In some ways, contemporary ﬁrst time buyers are luckier than their counterparts of thirty years ago; in some ways less so; above all they are different in many fascinating ways. Colin Shave CEO, GE Money Home Lending Life on Mars 2 Changes in the UK housing market since 1977 The UK housing market has undergone marked spectacular growth in house prices, particularly over changes over the past 30 years, due to a combination the past 10 years. The annual rate of house price of demographic, economic and political factors. inﬂation stands at just over 10% and it is estimated An approximate 8% increase in the size of the UK that house price inﬂation has averaged around 8% population since 1977 has resulted in a general boost annually since the late 1970s. Such considerable in demand for housing, while migration of people into growth in the cost of buying a home has had a major and out of different regions (particularly into London impact on the ability of young people to get on the and the South East) has given rise to changes in the property ladder, with a large proportion now opting nature of the property market at a local level. to live with their parents for longer. House prices Perhaps the most salient aspect of the changing nature of the UK housing market has been the House prices at mortgage completion stage, all houses, £ Figures are adjusted to reflect changes in the mix of properties mortgaged £220,000 2007: £205,797 £200,000 £180,000 £160,000 £140,000 £120,000 £100,000 1997: £77,531 £80,000 1987: £46,400 £60,000 £40,000 1977: £13,400 £20,000 £0 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Council of Mortgage Lenders/nVision Base: UK Life on Mars 3 Changing characteristics of the employment rate among 16-19-year-olds ﬁrst time buyers plummeted from 74% in 1961 to 55% in 1977 and 53% in 1997. For the 20-24-year-old age-group, the One of the major developments in the property employment rate has dropped from 75% in 1961 to market over the past 30 years has been a shift in 73% in 1977 and to 68% in 1997. the proﬁle of the traditional ﬁrst time buyer. People buying their ﬁrst homes are invariably older than Another inﬂuential trend is changing household they were in the 1970s and are more likely to be formation, with the proportion of young people single or cohabiting with a partner, friends or even living in households where they are unsupported strangers, rather than their husband or wife. by other household members having grown substantially since the 1970s. General Household One reason for the delay in home purchasing is the Survey data shows that 1973 almost nine out of ten dramatic rise in house prices which has pressured twentysomethings who were not living with their young people to delay entry to the housing market. parents were living in a married couple, compared There are now more than three times as many with just 29% of this age-group in 1996. students in Higher Education than there were a generation ago, compressing the numbers of Young adults are also exacerbating their lengthening young people who are active in the labour market dependency for broadly hedonistic or experiental in their twenties (and therefore in possession of the reasons. Our own analysis of the most recent data immediate buying power to create a deposit). from the International Passenger Survey shows us that just over 100,000 visits abroad lasting more than A muted rate of youth employment has had a 3 months were made by 16-24 year-olds in 1999, signiﬁcant effect on the ability of young people representing a 34% increase on the 75,403 long trips to achieve ﬁnancial independence. According to abroad made by young people in 1994. the latest data from the Labour Force Survey, “Such considerable growth in the cost of buying a home has had a major impact on the ability of young people to get on the property ladder, with a large proportion now opting to live with their parents for longer.” Life on Mars 4 The changing needs of ﬁrst time buyers As the population has become more afﬂuent and as an absolute necessity has almost trebled over the lives of consumers more complex, the aspects in the last 10 years. Similarly the proportion of ﬁrst of life that people deem they need have changed in time buyers who say they absolutely need digital/ relative position. satellite television has more or less doubled since 1997. This may be seen as an important factor in 53% of ﬁrst time buyers in 2007 cited living with a people’s decision to delay their ﬁrst home purchase partner with whom one has a good relationship as – a bigger budget is needed to cover those elements absolutely necessary to live properly. However, this of daily living which people are increasingly unwilling is down from almost three quarters of ﬁrst time to live without. buyers in 1977, reﬂecting a decline in the necessity of partnership, with more people happy and willing Having children is now seen as not nearly so to live alone, or to cohabit with friends or strangers, necessary a feature of life. This is reﬂected in the at least while they are young. declining birth rate in the UK, which has slipped from 14.1 live births per thousand women per annum in The proportion of ﬁrst time buyers who say being 1971-75 to 12.4 in 2006 (source: Population Trends, on friendly terms with neighbours is absolutely ONS). One third of people cited having children as a necessary to live properly has dwindled by almost necessity in 1977, compared with just 19% in 2007. a third. As well as representing a somewhat depressing statistic in the sense of possibly declining The declining importance of children to living social capital, this may also be a product of people properly corresponds to the increasing value compromising on the area in which they live and people attach to leisure time and going out with focussing more on the home itself. friends. Having sufﬁcient leisure time and, crucially, the means to enjoy it, is seen as a necessity by half Indeed, while other concerns retain more importance of the population, compared with just over a third overall, the proportion of people citing internet access in 1977. “53% of ﬁrst time buyers in 2007 cited living with a partner with whom one has a good relationship as absolutely necessary to live properly. However, this is down from almost three quarters of ﬁrst time buyers in 1977...” Life on Mars 5 Absolutely necessary to live properly when bought first home, by year of purchase Living with a partner with whom you have a good relationship Being on friendly terms with neighbours Having children Having sufficient leisure time and the means to enjoy it Have a telephone connection in the home Going out with friends and family Having internet access in the home Having digital/satellite TV in the home 80% 70% 60% 50% 40% 30% 20% 10% 0% 1977 1987 1997 2007 Source: GE Money/The Future Foundation Base: 789 aged 16+ who have bought property, UK, 2007 First time buyers: Living 'properly' then and now 1977 1987 1997 2007 % point change % % % % 1977-2007 Having sufficient leisure time and the means to enjoy it 36.5 39.1 52.2 49.8 +13.3 Going out with friends and family 32.2 31.8 39.0 44.5 +12.3 Have a telephone connection in the home 53.9 50.8 63.5 48.9 -5 Having children 33.0 25.1 18.2 18.5 -14.5 Living with a partner with whom you have a good relationship 71.3 60.9 56.0 53.3 -18 Being on friendly terms with neighbours 64.3 49.7 49.1 44.1 -20.2 Having internet access in the home N/A N/A 15.1 40.1 N/A Having digital/satellite TV in the home N/A N/A 13.8 26.9 N/A Source: GE Money / The Future Foundation Base: 789 aged 16+ who have bought a property, UK, 2007 “The proportion of ﬁrst time buyers who say being on friendly terms with neighbours is absolutely necessary to live properly has dwindled by almost a third.“ Life on Mars 6 Changing lifestyle priorities With priorities among people changing rapidly over time the picture below shows that in 1977 “With priorities the top priority when people were 25 was buying a home and getting married. Thirty years on, among people buying is not such an immediate priority and less emphasis is placed on getting an early toe onto the changing rapidly property ladder; spending time with friends makes over time the picture it to the top of the top list for importance and going travelling and changing job also see an increase in below shows that in attractiveness. 1977 the top priority Nearly 40% of those who have bought today still agree that being 20-25 these days is more about when people were 25 having fun than buying a property. was buying a home In 1977, buying a home was the most important priority but it was also perceived to be more stressful and getting married. among ﬁrst time buyers back then than it is today. Over 60% who bought in 1977 say buying a home Thirty years on, is one of the most stressful experiences of your life. Only 51% who have bought today say the same buying is not such an thing. immediate priority” Among men particularly, associating stress with buying your ﬁrst home tends to be perceived much more than experienced. Of those men who plan to buy in the next 3 years, 61% think it is going to be one of the most stressful experiences of their life. Of those who have bought Most important when 25 in the last 3 years, only just over By year of first home purchase half agree with this statement. 35% 1977 1987 1997 2007 It is interesting to look at priorities 30% in life by age when a home was 25% ﬁrst purchased. Perhaps not 20% surprisingly buying a home is of most importance when 25 15% among those that actually bought 10% between 20-25. Among those that 5% left it until their 30s to buy, buying 0% a home came bottom of the list of Buy a home Get Married Spend time Go travelling Change jobs importance when they were 25. with friends Source: GE money/The Future Foundation Base: 789 aged 16+ who have bought property, UK, 2007 Life on Mars 7 However, despite leaving it until later in life to purchase a home, more of those who have actually bought in the last 3 years than those who plan to buy in the next 3 years believe the positives of buying your ﬁrst home outweigh the negatives (69% compared with 60% respectively). Most important when 25 By age of first home purchase 35% 30% 25% 20% 15% 10% 5% 0% ild ild p r n ey y ds tra ds M e ng ar ho r e Bu ing bs p r llin g Bu bs ed ed tra ay ay o n io n et tion ca ha one G h om m c ch Sa a ch Sa rien en jo jo l id Bu lid H arri H arri ll ho ot o a a o ve ve ho e e M M fri om om a y y M ng f a a e e ve ve ith ith on y y av av et ha Bu o o w w G a a G G o o C C e e G G et et tim tim G G d d en en Sp Sp 20-25 Over 30 Source: GE money/The Future Foundation Base: 337 who bought their first home aged 20-25, 144 who bought their first home aged 30+, UK, 2007 “Nearly 40% of those who have bought today still agree that being 20-25 these days is more about having fun than buying a property. “ Life on Mars 8 Motivations for buying your ﬁrst home In 1977, having recently got married was the most unprecedented levels, worries about interest rate important motivation for buying a home by a rises and the potential for a property market crash considerable margin. Thirty years later, however, are also fearful prospects for ﬁrst time buyers. the picture has changed somewhat. Indeed, our survey found that 53% of people who plan to buy their ﬁrst home in the next three years In 1977, getting married was a major priority for state that they are very worried about the future of young people and, with levels of cohabitation and the property market. private renting much lower than they are today, buying a home was perceived as synonymous with The average age of both getting married and this process. Similarly, though it ranks relatively low having children for the ﬁrst time has increased to as a main motivation, having a child as a trigger for 30 or over. This shifting back of lifestage factors home ownership has fallen signiﬁcantly over the 30- traditionally linked with buying your ﬁrst home has year period, indicating that those lifestage factors helped drive the average age of ﬁrst time buyers to which were once key drivers of the ﬁrst time buyer 34 in 2007. market are fading in importance. However, people are delaying buying their ﬁrst home for a variety of reasons, in terms of both The primary motivation for buying your ﬁrst home in ﬁnance and maintaining a lifestyle (as discussed 2007 is ‘wanting to have something that is my own’, in ‘Changing Lifestyle Priorities’ section). As such, with 51% of ﬁrst time buyers citing this statement buying your ﬁrst home does not necessarily come as a main impetus. This suggests today’s ﬁrst time packaged up with lifestage change, and taking buyers see home-buying more as a move towards the decision to move onto the property ladder has independence and less as a prescription linked to become more important in its own right. marriage for those in their twenties. Just under half of ﬁrst time buyers in 2007 cited ‘it was now or never to get on the property ladder’ as a main motivation for buying their ﬁrst home, compared with only 15% Main motivations for buying your first home, by year of purchase of those who bought their ﬁrst property in 1977. I wanted to have something that was my own This could be seen in part as a It was now or never to get on the 1977 property ladder product of prevailing property 1987 I had recently got married 1997 values – with the annual rate of 2007 house price inﬂation currently It was time to settle down I wanted the freedom to make at just over 10%, people may something my own (eg. decorate) wish to get on the property I had or was expecting a child ladder before prices rise any Purely as an investment to make money further. Equally, with price-to- 0% 10% 20% 30% 40% 50% 60% earnings ratios at historically Source: GE Money/The Future Foundation Base: 789 aged 16+ who bought property, UK, 2007 Life on Mars 9 Interestingly, the proportion of ﬁrst time buyers stating ‘it was time to settle down’ as a main motivation has risen across the 30 years, from 17% in 1977 to 34% in 2007. This can be explained by the fact that in 2007 people buying their ﬁrst home are older and so are more likely to buy when they decide they are ready to settle. For people in the ‘70s and ‘80s, settling down came earlier in life and more as a matter of course. Average age at occurrence of selected lifestage factors Average age at Average age at Average age of Average age of first marriage (men) first marriage (women) mother at first live birth first time buyers (b) 1977 25 23 27 27 1987 26 24 27 31 1997 30 28 29 32 2007(a) 32 30 30 34 % change 27.5% 31.1% 11.7% 25.9% 1977-2007 Source: National Statistics/nVision (a) 2007 figures are estimations based on previous growth rate, with the exception of average age of first time buyers (b) Average age of first time buyer figures are from the Council of Mortgage Lenders “In 1977, getting married was a major priority for young people and, with levels of cohabitation and private renting much lower than they are today, buying a home was perceived as synonymous with this process.” Life on Mars 10 How the ﬁrst home is bought Buying one’s own becomes ever more popular. Only 30% of people who bought in the last three years or “Nearly a quarter plan to buy in the next three feel that people should wait until they are in a long-term relationship before (23%) of men who they buy a home. Even people who have already bought with a partner would have bought on their bought with their own if they could have afforded it. wife or partner in As the number of marriages has seen an overall decrease over the last 30 years, buying your ﬁrst the last 3 years home with your husband / wife has seen an even bigger decrease since the 70s from 80% in 1977 to said they would just a third today. rather have With the average marriage coming later in life, bought on their cohabiting becomes ever more popular so it’s not a surprise that buying with your partner before own if they could marriage has seen a strong increase since the 1977. Nearly a quarter (23%) of men who bought with their have afforded wife or partner in the last 3 years said they would rather have bought on their own if they could have it. Only 13% of afforded it. Only 13% of women feel the same. women feel the However, the pre-perception of ownership running costs is often worse than the reality. Single people same.” who have bought on their own in the last 3 years are more than twice as likely to agree that their current salary Who first home was bought with, by year of allows them to both pay their purchase mortgage on their home and live comfortably than those who are With my husband/wife planning on buying in the next 3 years. With my partner Although it’s still the least On my own 1977 popular option, buying with a 1987 friend or groups of friends to get With my sibling/other 1997 family relative 2007 into home ownership is seeing an increase in popularity, as is With a friend/groups of friends buying with relatives. This is particularly true for those who 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% bought their home aged under 20 Source: GE Money/The Future Foundation Base: 789 aged 16+ who have bought property, UK, 2007 Life on Mars 11 as ﬁgures show a sharp increase for this age group. recent times have already built a reasonable amount of awareness among ﬁrst time buyers today. With people feeling it is harder to put a foot on the ﬁrst rung of the property ladder these days, The 100% and interest only mortgages have always more and more ﬁnancial options are being offered had top awareness and the First Time Buyers by companies to ﬁrst time buyers. Some 85% of mortgage has shot up to the same level of awareness those who have bought in last 30 years agree that in the last 20 years. Awareness of the First Time there are a lot more ﬁnancial options available Buyers mortgage is more common among those now than in the past. As the chart below shows, who buy at a younger age whereas those who buy awareness of these options is ever increasing and over 30 show higher awareness of the right to buy options such as the Key Worker Housing and 125% scheme. mortgages which have only been introduced in Awareness of financial options when buying first home By year of purchase 80% 70% 1977 1987 1997 2007 60% 50% 40% 30% 20% 10% 0% 100% Interest only First Time Shared Right to Buy Key Worker 125% mortgages mortgages Buyer ownership Scheme Housing mortgages Mortgages Source: GE money/The Future Foundation Base: 789 aged 16+ who have bought property, UK, 2007 “Some 85% of those who have bought in last 30 years agree that there are a lot more ﬁnancial options available now than in the past.” Life on Mars 12 Parental support With house prices having risen 1,436% over the ﬁnancial support from parents in the modern last 30 years, mortgage payments are increasingly era puts the difﬁculties which young ﬁrst time eating into the incomes of ﬁrst time buyers. The buyers notoriously face in a new and more benign average ﬁrst time buyer must now devote 22% analytical light. of his/her annual income to mortgage payments compared with 18% in 1997, 17% in 1987 and 13% Receiving help with the deposit in particular has in 1977. always remained the most common feature but help in all areas has increased. Although on a As a result, more and more people are receiving lesser scale, grandparents are also providing more ﬁnancial help from their parents these days ﬁnancial support these days and even getting help compared to the ‘70s. 51% are now reliant on from other third parties is seeing an increase. some level of ﬁnancial support from parents and/or grandparents. Our data shows that it is those buyers aged 20-25 who are more likely to get ﬁnancial help compared (Some 76% of respondents believe that now is the with those aged 30+. Men are slightly more likely worst time in terms of affordability for ﬁrst time to receive help than women. But as the chart buyers. 73% believe it is difﬁcult to buy these days below shows, being single attracts a differentially if you are under 30). Clearly, the arrival of much high level of parental intervention. Receiving help from parents/grandparents By year of first purchase 35% 30% 1977 2007 25% 20% 15% 10% 5% 0% lp lp it it s s re re os os st st he he itu itu co co ep ep rn rn to to ge e D D fu fu ag ce ce s/ s/ a tg an tg an st st or or co co rit rit M M he he g g in in In In ov ov M M Parents Grandparents Source: GE money/The Future Foundation Base: 789 aged 16+ who have bought property, UK, 2007 Life on Mars 13 “The average ﬁrst time buyer must now devote 22% of their annual income to mortgage payments…” “51% are now reliant on some level of ﬁnancial support from parents and/or grandparents.” Life on Mars 14 Conclusion This study, in taking a long-term perspective on Potential ﬁrst time buyers are adjusting to a range the changing experiences of ﬁrst time buyers in of socio-economic changes and one major result the UK, has provided us with some striking insights. of their adaptability has been an increase in the The proﬁle of the traditional ﬁrst-time home-buyer variety of ways in which the ﬁrst home is bought. has altered, with the average age at ﬁrst property More young people are prepared and willing to buy purchase coming to rest at 34 in 2007 – a full seven on their own nowadays – indeed, our survey found years higher than the average age in 1977. that for a signiﬁcant proportion who bought with a partner, buying on their own would have been their The fact that taking one’s ﬁrst step onto the property preferred option had they been able to afford it. ladder now occurs later in life is due in no small part to economic factors. House prices have risen A signiﬁcant proportion of ﬁrst time buyers rely dramatically, particularly over the past ten years, heavily on the ﬁnancial support of their parents to and with an unprecedented proportion of young facilitate their move onto the property ladder. This people now entering into higher education, many throws up an interesting paradox in that ﬁrst time of today’s twentysomethings simply cannot muster buyers’ main motivation for purchasing is to achieve the funds necessary to create a deposit. independence, yet many would be unable to do so without being dependent to some extent on their However, our analysis has revealed that today’s parents. potential younger buyers also have vastly different attitudes, aspirations and lifestyles to their Our survey found the top reason parents give for counterparts 30 years ago and this also represents a providing ﬁnancial assistance is that they want to signiﬁcant factor inﬂuencing the delay of ﬁrst home rather than have to. This suggests that for parents purchase. themselves, being able to help their children become homeowners has become an important and There has been a considerable decline in the gratifying part of an extended parenting process. proportion of those buying their ﬁrst home with And, of course, with such a volume of parental their husband or wife, amid a general shift in the support, that ﬁrst time purchase price does not look priorities of young people in 2007 away from getting so forbidding after all. married and having children as key aspirations, with the emphasis moving towards spending time with friends, travelling and changing job. As such, the driving forces behind buying a ﬁrst property have changed from family-oriented motivations to a desire to gain independence and a sense of worth. Colin Shave CEO, GE Money Home Lending Life on Mars 15 “...our analysis has revealed that today’s potential younger buyers also have vastly different attitudes, aspirations and lifestyles to their counterparts 30 years ago and this also represents a signiﬁcant factor inﬂuencing the delay of ﬁrst home purchase.”
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