PropertyApr 18 2017

Cascading housing wealth benefits one in four millennials

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Cascading housing wealth benefits one in four millennials

An imminent "cascade" of housing wealth worth £400bn is set to pass into the hands of four million millennials over the coming years, a survey commissioned by Royal London has found.

However, this money - which is expected to leapfrog baby-boomers - will benefit fewer than one in four people aged between 25 and 44.

Royal London's director of policy and former pensions minister Steve Webb said, while this "cascade" would overcome inter-generational unfairness for a "lucky" four million, it would do nothing for the remaining 13 million 25 to 44-year-old that stand to receive nothing.

He claimed the government was compounding this problem with products like the Lifetime Isa, which would benefit those who already have access to wealth.

The survey, which was conducted by YouGov, covered 5,000 people across three age ranges: 25 to 44 (the "children"), 45 to 64 (the "sandwich generation"), and 65 to 85 (the "grandparents").

It found that, while most of the wealth held by the grandparents’ generation would be passed to their baby-boomer children, the majority of baby-boomers said they intended to pass "some or all" of this inheritance straight to their millennial children.

Of those "grandparents" that owned property, the average value was between £400,000 and £500,000.

This group typically intended to hand this wealth on to four or five recipients.

However, only one in five of this generation felt under pressure to pass on wealth to the next generations. 

This changed in the "sandwich" generation, where two in five felt pressure to pass on their wealth, in part because they had more exposure to the struggles their children faced in getting on the housing ladder. 

The top end of this group - the 55 to 64-year-olds - were particularly likely to pass their inheritance straight on to their children, with two thirds saying this is what they would do.

The childrens' generation, while frustrated with perceived inter-generational unfairness, were generally not expecting to receive any inheritance - although two in five had already received a lump sum of some sort.

The vast majority of millennials - 85 per cent - actively wanted their grandparents to  ‘"spend freely to enjoy their retirement" rather than prioritise passing their wealth on. 

Mr Webb said there was "a wall of housing wealth set to cascade through the generations in the coming years" thanks to the importance the older generations attached to passing on wealth.

"Those millennials lucky enough to have home-owning parents and grandparents may be set to benefit from significant inheritance which will help them onto the housing ladder," he said. 

"But the majority of millennials are not in that position. Schemes such as the Lifetime Isa which provide a government contribution of £1,000 per year for those who have £4,000 per year to save will tend to favour precisely those groups who already have access to wealth.

"There is a danger that this will reinforce the advantage of those who are set to benefit from a cascade of wealth from the older generations," he said. 

While the paper called on the government to design policies for those that do not stand to inherit housing wealth, it did not venture any concrete policies of its own.

The Lifetime Isa, a policy of former chancellor George Osborne, came into force at the beginning of April.

It allows people aged less than 40 to start saving up to £4,000 a year, plus a 25 per cent government bonus, towards either a first home or retirement.

It was pitched as a way to help young people get a foot on the housing ladder. However, as yet only one building society and a handful of investment product providers offer a Lifetime Isa.

james.fernyhough@ft.com