“Viewing the current economic situation with ‘glass half empty’ specs on is to do our young people a dis-service. In my experience, you only have to head to YouTube and Instagram to see the amazing creativity and energy of today’s 20 and 30 somethings. They are resourceful and will figure out the solutions to overcome the financial and societal challenges posed.”
Paul Welch, CEO of Large Mortgage Loans gives his thoughts on the Institute of Fiscal Studies’ review of inequalities and situation regarding wealth vs earnings for today’s young people.
The IFS Deaton’s review of inequalities quite rightly raises some potentially worrying points on the situation regarding personal wealth versus earnings amongst the UK’s young people. After all, this is a generation that has lived through a decade of cheap lending rates and a booming property market in some areas of the country. But this was always a situation that was unsustainable in the long term. At some point, a correction in interest rates and the property market was always going to happen. This presents a challenge for today’s young people who are hoping to get onto the property ladder. But it’s a challenge that is not insurmountable.
I suspect if this generation of 20 and 30 somethings spoke to their parents or grandparents about their fears of never owning their own home, many of this older generation will refer back to the days of the 1970s when we saw interest rates of 17% and inflation peaking at 25%. In those days, we also saw high levels of unemployment and a depressed labour market.
In terms of securing a mortgage, there were very few options for people who wanted to buy their own homes. It was likely that those seeking a mortgage would be offered a maximum of 2.5 times their salary in the form of a variable rate only, so as those interest rates rose, so would their mortgage. Securing a mortgage would also have involved an interview with the local building society manager to ensure that they were a suitable candidate for a mortgage.
But, for all the challenges that 20 somethings in the 1970s and 1980s faced, some people did manage to buy their own home and there is no reason as to why today’s younger generations won’t be able to either. It might just be that after years of low interest rates, low inflation and cheap lending, young home buyers might have to adjust their expectations of what they can afford and how much they are willing to pay. Yes, it will be uncomfortable to come to terms with mortgage rates of 5 or 6% but we’re a long way off the double figure rates of the 70s, 80s and 90s.
I think one way of looking at this is that every generation has its challenges, whether that’s paying for university education, moving out of the family home, dating, travelling or finding a job that’s rewarding emotionally but also financially. It’s all part of how things evolve. The 90s saw a period of great creativity in financial services and we have so much more flexibility with the types of mortgage products available and the different criteria that lenders are prepared to offer. The decision to lend a mortgage doesn’t sit with just one building society manager these days, thankfully. First time buyers can shop around for the right lender with the right products so even if interest rates continue to rise, they will have options available to them In addition, the jobs market is looking healthy as the Office of National Statistics estimated an employment rate of close to 75.5% recently and over 1.2m job vacancies in Q3 of 2022.
We’re also hearing increasingly of innovative, creative, talented young people running ‘side hustles’ in order to earn some extra money, aided by smart technology. You just need to head to YouTube and Instagram to see them in action. As such, the UK is a hot bed of up and coming entrepreneurs – schoolteachers hosting evening online tutoring with children on a different time zone halfway across the globe; marketing executives by day, video producers by night; university students not satisfied with just classroom learning but also setting up businesses from their bedrooms linked to their studies and providing them with hands-on experience by putting their studies into practice. Young people working hard and working creatively to achieve.
We could look at this current market situation with our glasses half empty. But, I think this would be doing a dis-service to our young people who, when faced with these challenges, will (I think) prove to be resourceful and agile in coming up with solutions, just as my parents and my grandparents’ generations did too.
