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Generation Rent: What does it mean and what's to blame?

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A recent study found that 48% of people believe that young adults can’t afford to buy a home due to spending too much on takeaway food and coffees, mobile phones, holidays and Netflix... Yes, really!

  • ⅓ of 20-34 year olds still live at home with their parents
  • The average age to move out is 25.4 years for men and 23.8 years for women
  • On average, 23% of UK wages are spent on rent

Generation Rent

 

What are young adults spending their money on? 

Are today's young adults, described as 'generation rent', putting their daily coffee orders and avocado on toast ahead of saving for their forever home, or are there other factors at play? Despite recent news articles and commentary scathing millennials and ‘generation rent’ about lifestyle choices, in reality, 9 in 10 Millennials say they actively manage their money and 53% see themselves as savers rather than spenders. This saver vs spender ethos also rings true in the way millennials spend their money, with debit cards the preferred way to pay for all products and credit cards being used on the pricier purchases over £500. And for those millennials who currently don’t have a credit card, 93% said they don’t even want one.

 

Why are young adults living at home longer?

The average age for a young adult to leave the nest in the UK is 24.6 years old, when many have finished their higher education, managed to secure a full-time job and have finally found some financial freedom. Men tend to leave the family home later at the age of 25.4 years old than women at 23.8 years old.  Are you thinking about renting for the first time?  Here’s what you need to know.

Whilst there’s no actual facts as to why women fly the nest earlier, two theories are that the number of women attending university and remaining in higher education are larger than men, and women have been traditionally more likely to move in with a partner at younger ages than men.

For many, moving out of a childhood home is a milestone. It’s the start of adulthood, but gone are the days where young adults are able to move into a home they’ve purchased. These days, many young adults are finding they’re priced out of the housing market - unable to jump on the property ladder due to the majority of their income being spent on rent.

In 2021, UK renters spent an average of 23% of their income on rent. In London, this was even higher with tenants of privately-let homes spending almost 40% of their wage on rent. That’s almost double most of the UK and renting woes don’t stop at the cost. 25% of Gen Z and millennials have moved home 10 or more times since they left their family house and a further 25% expect to move at least another five times before they find their ‘forever’ home

Wondering what renters in the Capital get for their money? Why not check our article, ‘The UKs Housing Market Horrors’ to see some of the most bizarre properties on the UK market.

So, why can’t young adults just buy a house?

Renting is expensive. But if ‘generation rent’ stops buying avocado toast and saves their pennies, they can surely afford to buy a house right? Wrong. In 2021, a study conducted by The Office for National Statistics (ONS) found house prices grew faster than earnings in 91% of local authority districts. Not only this, but triggered by the cost of living crisis UK average house prices increased by 15.5% over the year to July 2022 - the highest annual inflation rate the UK has seen since May 2003.

It’s no wonder that people aged between 26 and 42 are buying fewer homes than ever, accounting for just a quarter of property transactions in 2021. But it’s not only house prices that are holding young adults back from the property ladder. The cost-of-living crisis is adding to affordability concerns, mortgage rates are increasing, and further checks by banks are pushing the costs of loans up. In fact, 50 percent of renters could actually afford the monthly cost of a mortgage but these various constraints mean only 6 per cent could immediately access a typical first-time buyer mortgage.

Whilst millennials may look like they are living the life, like everyone they are concerned by the cost-of-living crisis and like everyone in the UK, they’re seeing an increase in their bills, forcing them to stop spending on non-essentials. YouGov recently found that 26% of adults reported being unable to save money as usual with 18% stating that they had to use savings to cover living costs.

So, let’s be honest… whilst giving up that daily flat white order and avo on toast may allow young adults to save some money, is it really going to help them save up for a whole house deposit so that they can get on the property ladder?

Let’s talk ‘Freddonomics’...

For those of you not blessed enough to have enjoyed this tasty chocolaty treat, a Freddo is a chocolate bar brand shaped as an cartoon frog - most widely known for costing just 10p in 2000. Children everywhere rejoiced as their £1 pocket money purchased them what felt like an extraordinary amount of goodies - 10 Freddo’s!

Most recently, Freddo’s sparked an internet phenomenon when they were used to demonstrate the disparity of price inflation vs wage inflation - kick-starting the internet trend: Freddonomics. In 2022 the average price of a Freddo was 30p, a whopping 200% price increase on the 10p customers would pay back in 2000. This price increase accounted for a year-on-year (YOY) price rise of 4.36% which was double the average YOY inflation rate in the period of 2.33%. 

And it’s not just Freddo’s that are affected by inflation, the housing market is too, with the average house price increasing steadily year on year since 2008.

The generation game…

  • Boomers, who are they? Boomers refers to the post WW2 generation, and therefore a person born during the UK’s baby boom between approximately 1945 and 1965.
  • Generation X, who are they? Born between 1965 and 1979. In the UK, Generation X grew up in times of change, surrounded by unemployment, strikes and economic turmoil.
  • Millennials, who are they? Or Generation Y as they are sometimes known are the generation born between the 80s and 90s, it's not certain where the generation starts and ends, but it's approximately those born from 1980 to 1995.
  • Generation Z, who are they? Generation Z is largely defined as those born between 1996 and 2012.
  • The Peter Pan Generation, who are they? The generation with the ‘never grow up’ mindset. They’re categorised as the fun-loving tribe of 25-40 year olds determined to do everything and spend everything, delaying the traditional milestones of adulthood like marriage, children and mortgages. Many believe they would rather spend their wages on a newly opened foodie hotspot, a designer wardrobe or a daily flat white than save for their future.
  • Generation Rent, who are they? Generation Rent is a term to describe those young adults (18-40) who have been priced out of the housing market. They’re unable to buy and save due to spending a high percentage of income on rent coupled with high living costs, student loan debt and low wage growth.

 

Whether you’ve finally put one foot on the property ladder, or you’re still renting your home, make sure that your insurance is up to date to avoid any unexpected costs.

Are you a parent and worried for your child about getting on the housing ladder? Check out our article about ways you can help them out through this process.

 

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