‘Mum, Dad, now about your house...can I have it?’
- Credit: PA
News that around one third of millennials could still be renting by the time they retire is likely to have triggered a wave of understandable despondency amongst 20 - and 30-somethings, the cohort for whom property ownership may, at the moment, appear a distant dream.
How best to respond? There are not many options: millennials can either shrug and accept their fate, pointing to countries such as Germany where property ownership is less of an obsession (around 60% of Germans rent their homes – the percentage is even higher in Switzerland) and ask if it is worth emulating people in these countries?
Alternatively, they can do something about it (primarily by saving) and accumulate enough cash for a deposit on a house, or third, they can have one of those conversations with their parents.
This is not what might be called the 'traditional' facts of life chat; it's the financial version.
Baby boomers, the large chunk of population born between 1948 and 1964 that appears to own everything, have benefited from a number of post-war improvements in health, education and environment, but from a financial perspective, many have hit the jackpot following a sustained boom in house prices since the early 1990s. It means the 'lucky generation', most of them parents of millennial-aged children, own more than half the nation's aggregate wealth, the majority of which is wrapped up in property.
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Yet even boomers, though lucky, cannot delay the inevitable; we will not be around forever. Accordingly, an enormous wealth transfer will take place over the next 30-odd years and millennials will be the principal beneficiaries.
The transfer has already begun; according to the Royal Bank of Canada, around $4 trillion in assets currently owned by the boomers will transfer to millennials in North America and the UK over the next generation. Accountancy firm Accenture believes that by 2050, a total of $30 trillion in 'non-financial assets' will be passed on to those born between 1983 and 1999.
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Of course, a sizeable proportion of millennials might be a little concerned at waiting until they have grey hairs of their own before inheriting their parents' home and seek instead to move things along by asking if they can enjoy a small advance now and wait for the balance, ideally three or four decades down the line?
You can see how awkward that conversation could be.
The 'Bank of Mum & Dad' is already the nation's fifth-largest lender, but what if this benevolent couple want to use their home as a form of pension? What if they opt for equity release, using their house as a cash machine to fund a round-the-world cruise? What if they downsize and bank the proceeds, blowing huge wads of it on 65th birthday celebrations?
If the prospect of their parents becoming 'skiers' (spending the kids' inheritance) adds to a millennial's gloom, it's not intentional. Furthermore, help is at hand.
Let's assume you reject the German model and seek to become a first time property owner. In which case, may I direct you towards two forms of ISA: the Help to Buy (HTB) version and the Lifetime ISA (Lisa).
In November next year, it will no longer be possible to open a new HTB ISA. Before then, however, individuals may save up to £12,000 and provided they have a minimum of £1,600 in their HTB account when buying a home, a 25% taxpayer bonus is added, to a maximum of £3,000. In theory, this would give couples a joint £6,000 towards their property purchase.
The Lisa, introduced in April 2017 and targeted specifically at 18-39-year-old savers, is slightly more generous, although this is offset by a series of restrictions.
Up to £4,000 a year can be saved into a Lisa, which also attracts a 25% taxpayer bonus. However, the funds may only be used (by first-time buyers) to buy a home, or alternatively, for retirement.
Savings can continue to be made in the Lisa up to age 50; anyone saving the maximum each year would, therefore, ultimately receive bonuses worth up to £33,000, but for those considering using the funds in a Lisa for retirement, a 25% penalty applies if they withdraw the cash before they reach 60.
This potentially nasty sting in the tail may dissuade people from using the Lisa as a form of pension saving, but for prospective home buyers, it looks at least as attractive as the HTB ISA. And it could prevent you having to sit your folks down, clear your throat and say, 'Now. About your house….'
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