Guppies: Heading for financial car crash at retirement?

Last week the world of property welcomed the arrival of ‘guppies’ - a new term coined by Zoopla to describe adults aged 18-39 who have ‘given up on property’. Although the phenomenon itself is far from being new (or surprising), national and business titles have clearly embraced the catchy term, which has been featured in numerous articles since last week.  

So why are the guppies suddenly getting such a flurry of media attention? It’s all about the underlying data behind this cohort, pointing to a rather worrying trend.  

According to Zoopla’s latest survey, 38% of adults not currently owning a home, including those on relatively good salaries, have given up on the idea of buying a property in the next 10 years – a pretty scary figure that gives cause for concern. 

Can a decade make a difference? 

Unless there is a drastic change in the supply of homes, we are unlikely to see any meaningful price readjustment, which means that for many, buying a property even in 10 years’ time will remain challenging, if not impossible. And as we’ve come to learn, property prices do tend to increase over the long term, which means that those hoping to be able to buy their first home in 10 years will face much steeper prices (and no guarantee that their salaries will have grown in line with the house prices).  

Needless to say, the older we are, the trickier it is to secure long-term mortgages, with the maximum age at the end of the mortgage term commonly being 70 or your retirement age, whichever is sooner. What that means is that those aged 39 today may struggle to secure favourable deal terms in 10 years’ time, making the dream of homeownership further out of reach. 

Given where the rental market is at the moment, with buy-to-let landlords rumoured to be selling up en masse, further intensifying the competition for rental properties, ever-increasing rents will continue to eat away at disposable incomes. And, unlike with mortgage repayments that ultimately go towards increasing your share of equity in an asset, paying to a landlord means simply waving goodbye to your hard-earned pounds every month. 

What is actually wrong with renting? 

At this rate, it is not difficult to imagine thousands of people deciding to give up on property ownership altogether. So why is that a problem, you may ask? Isn’t that the case in countries, like France and Germany, where 35% and 50%+ of households, respectively, rent their homes? Correct, but in these continental European countries the state pension system happens to be far more generous than what your average retiree can count on in the UK, making it way easier to afford market rents even at an old age (and without having to sell your kidney).  

Not just a place to live 

For many, buying a property is not just about owning a place to live, it’s also a question of saving for the long term to finance retirement or help younger family members in the distant future. The older generation, many of whom own their properties outright, are currently able to benefit from equity release, for example, allowing them to take cash out of their home without having to move. Downsizing is another common way of freeing up capital at an older age by moving to a smaller and often cheaper property and using the rest of the proceeds from the sale to top up an often measly pension. These are by no means the only ways to boost finances in retirement – let’s not forget ISAs and investing in the stock market, not to mention more sophisticated schemes one can turn to in order to make their money work. The only problem is that unlike purchasing a property to live in, investing and even saving in a tax-efficient way requires at least a minimal degree of financial literacy.  

How personal-finance-savvy are we? 

Sadly, according to recent research, only under 30% of UK adults can be described as financially literate, with those aged 18-24 scoring the lowest. This financial illiteracy combined with no realistic prospects of getting on the property ladder at a relatively young and active age are a recipe for disaster upon retirement. The UK pension system is far from perfect – most people rely on a mixture of personal savings (including assets, of which property is probably the most common one), the state pension and their private pension, if they have one. Without a home to their name, many future retirees will find themselves in a rather precarious position, and on top of that, they will be expected to continue paying sky-high rents whilst receiving zero income – something the guppies can rely on now, while they’re young, full of promise and employed.  

What can be done? 

Renting or not is a personal choice and one that’s more often than not dictated by circumstances, but those who have decided that buying a home is not for them should start thinking about how they’re going to finance their retirement already today to avoid getting into a financial hole.