Our house price forecasts for the next five years (see Table 1.1) reflect the realities of a market which favours equity rich households and excludes those with a high borrowing requirement.

This means that the distinction between the purchasing power of households through the various life stages will persist, with implications for transaction levels in different tiers of the market and different locations.

The under 35s

Our analysis shows that the under 35s own less than 4% of the total equity held in the UK’s owner-occupied housing stock. In the past five years the number of first time buyer purchases has averaged just 200,000 per annum, down from 390,000 in the previous five. As a direct consequence, the rate of growth in renting among this cohort has increased sharply since 2007.

Recent census results show that the under 35s have become increasingly concentrated in urban centres. In the 20% of locations where they are most dominant, they now account for 36% of the adult population, having grown in number by 19% in the past decade.

As a result, the price of smaller properties in such locations will be increasingly driven by their underlying investment value, and the growth of rental will be a key factor. Transactions within this part of the market, and ultimately values, will be a function both of the extent to which the investment market grows and the extent to which housing wealth is preserved and passed down the generations.

Younger households aspiring to home ownership have become increasingly reliant on the benevolence of baby boomers and downsizing relatives – the over 55s who control 66% of the equity tied up in owner-occupied housing.

A significant rise in the proportion of first time buyers receiving help to buy, combined with a sharp increase in the deposit which they have to raise, means the assistance provided by the so-called ‘Bank of Mum & Dad’ has risen dramatically since the beginning of the credit crunch.

Our calculations suggest that, in the past five years, the financial
help given to first time buyers has rocketed to between £15 and £18 billion, up from £6 to £8 billion in the five years pre-crunch.

Aspiring Upsizers

Aspiring upsizers, or ‘second steppers’, looking to move up the lower and middle rungs of the housing ladder, face similar issues. A lack of house price growth is limiting their ability to build equity to carry over to their next purchase. At the same time a lack of first time buyers is limiting their ability to sell.

Mature Families

In the search for larger homes second steppers are at a disadvantage to more mature families, who are not only spread more broadly across suburban commuter and rural locations, but also hold 75% more housing equity than those in the younger age brackets. They are therefore able to raise the required deposit (or more), and borrow more cheaply as a consequence.

The over 55s

Those with the greatest equity and the fewest barriers to moving are the over 55s, the baby boomer and downsizing generation. But these potential buyers are currently held back by consumer sentiment and a desire to wait for better market conditions to maximise the equity they release.

The distinctions between these different groups are reflected in transaction levels in the different housing sub markets. And it is the relative buying power of the different life stage groups that will determine the pace of recovery over the next few years.