Stakes and ladders

Today’s young people often point bitterly to the lower house prices their parents and grandparents paid, while those from older generations look jealously at the low interest rates that first-time buyers now enjoy. So, who has really had the better deal? In this briefing note we assess the costs and benefits of buying one’s first home over the generations. We do this through a simple thought experiment, estimating the fortunes of the typical first-time buyer purchasing in each year between 1974 and 2020 over the course of their mortgage term.

We find that although typical first-time buyers from older generations did contend with high interest rates especially in the early years of ownership, policy helped soften this blow. Today’s typical first-time buyer faces two different challenges. First, they must find significantly more cash upfront for a deposit (a function of higher real house prices and tighter lending criteria). Second, they must service a much larger mortgage than their parents’ and grandparents’ generation.

This has significant implications for the many young people today who expect to become home owners at some point in time. They will need to save for longer in order to get on the housing ladder (absent a gift or inheritance); require a bigger income to cover the costs of buying a first home than older generations; and may have to forgo other consumption opportunities as a result.