Caught in the financial whirlwind: Gen Z's battle for homeownership

By Avantika Suhasaria

In a landscape where homeownership is often seen as the ultimate symbol of stability and security, many young people today find themselves caught in a financial whirlwind. As the aspiration for a place to call their own becomes increasingly elusive, Gen Z is discovering the harsh reality that they are committing a significant portion of their income to secure a home. A new study reveals that young buyers in the UK are facing mortgage repayments that are nearly double those of their older millennial counterparts.

New research from estate agent Hamptons reveals that millennials, the generation born from the 1980s to the mid-1990s, faced an average monthly mortgage payment of approximately £863 for their first home when adjusted for inflation. In contrast, baby boomers, born between 1946 and 1964, paid around £775 monthly on average, while Generation X, born from 1965 to 1980, had a higher average payment of £923 per month.

Now compare that with Gen Z (those born since the mid-90s): as they start to buy, they’re looking at monthly repayments of £1,739.

The dramatic increase in mortgage costs for younger buyers stems from a combination of near-record house prices and sharply rising interest rates. The average property value in the UK has climbed to approximately £293,399 as of September 2024, noting a high record. This financial burden translates to Gen Z paying an estimated £104,000 in repayments over the first five years of their mortgage—far exceeding the financial commitments of previous generations during similar time frames.

When comparing early mortgage periods, the difference in financial burden becomes evident. Baby boomers, for instance, faced mortgage rates as high as 13.5% when purchasing their homes. While this rate seems steep, it was applied to much lower home prices compared to today. In fact, baby boomers paid the equivalent of £74,000 in 2024 money for their homes, making the overall cost of borrowing more manageable despite the high-interest rates. So, while they experienced rates of 13.5%, the smaller mortgage amounts meant housing was still more affordable than it might seem today.

Meanwhile, millennials, who began purchasing homes after the 2007 financial crisis, enjoyed historically low mortgage rates, which cushioned the impact of rising property prices. In contrast, Gen Z is not only dealing with higher house prices but also with elevated interest rates, which are not expected to return to pre-pandemic levels anytime soon.

The current housing market conditions represent a "perfect storm" for Gen Z, who are also entering a competitive job market amid economic uncertainties. Reports indicate that some young buyers are considering extending their mortgage terms to 40 years as longer payment periods become increasingly common. However, this approach often leads to higher overall repayment amounts, further complicating their financial future.

The increasing difficulty of entering the housing market has prompted discussions about the need for more supportive housing policies aimed at younger buyers. Advocacy groups argue that greater assistance, such as government-backed deposit schemes and more affordable housing options, could help alleviate some of the pressure on Gen Z homebuyers. Without such measures, the dream of homeownership may remain out of reach for many in this generation, perpetuating a cycle of financial strain.